It hasn’t been long since Apple (APPL) disappointed investors during their earnings call. I waited patiently and on January 27th, I entered a limit to sell one naked put on APPL when it dipped even farther. It went the other way, but I held, trusting the chart would work for me. This is different behavior than a couple of months ago when I started forcing trades and I’m glad I waited, as I should do with every trade. When AAPL was trading at 123.10 near the end of the day, my order to sell one March 115 naked put (QAAOC). I received $489.25 after commissions.
I’m banking on AAPL leveling out and hopefully rebounding before it dips below 110, my break even point. CSCO gave a less than stellar outlook on its earnings call this afternoon, which could be bad news for the rest of my tech holdings, including AAPL. I thought CSCO would come out better and bought 200 shares in my wife’s IRA two days ago.
I also bought 200 shares of MSFT in my own IRA today at 28.50 from a limit order I put in yesterday during lunch. I could see on the chart that I thought MSFT would come down to around 28.50, but honestly thought it would take longer. I have a lot of cash sitting in our IRAs now and don’t plan to make many more trades there until this ugly bear calms down. In fact, I might have to sell some more naked CALLS in my taxable account this week to capitalize on the strong likelyhood that we’re not heading far north in the near term.
AAPL? I guess you’re looking for a little more excitement in your life! Seriously, though, I’m somewhat stunned by this trade. You have 8 months worth of scared buyers in over $120 that are now in hope mode. If put to you at $115 you’ll have over 12% in one stock. Too aggressive IMHO, but I certainly hope it works for you.
Yes, it’s a risk, but I think AAPL has some life left in it. I need to update my “Current Portfolio” page. I’m down to $80k in this account. That means that if assigned, I’ll have a cost of $11,000 ((115×100)- 500 premium) and an account with $80k (hopefully more by then, not less). That’s nearly 14%. I can hold about seven stocks with this percentage with no margin. Throw in that I double my trading basis the way I trade options and I can actually have 14 stocks. That’s as many as I care to track on a regular basis. Around 10-12 is probably closer to ideal, but I’ll go up to 15 sometimes.
This math helps explain why I did so well last year with more money in play and why I did so poorly in January.
Mule, I forgot to mention the second part of the plan if assigned. With such high volatility I could sell a covered call for over $8 with just five weeks to go until expiration. If I went a full two months out I’d get more and reduce my cost to closer to 100 if needed. That’s a pretty solid cushion for a company that has already had a 50% retracement from low to high to current price.
Not to be a wet blanket or anything but AAPL has a market cap that’s 3x DELL’s. With iPod/iPhone hit by consumer slowdown, everyone is betting on Mac sales. Taking more market share in the PC market does not increase profits. DELL is the leader and they have trouble keeping margins up. It’s a commodity world and the more market share you grab, the harder it is to differentiate. I know that my value for an Apple product drops as more people have it.
I am not saying this is a bad trade. I almost did the same thing. Like mule65, I think there is too much dumb money in the stock. Good luck.
I’ll try to get a post up sometime in the next few days to elaborate on my reasoning. I admit the dumb money invested in AAPL, but hope it sticks around through March expiration. AAPL and DELL don’t compare to me. Check their profit margins.