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Don’t Sit Under the Apple Tree

We often discuss gravity in relation to the stock market in general but, in honor of Sir Isaac Newton, I think it is apropos to discuss gravity as it relates to one particular stock – Apple.

As Sir Isaac discovered, when an apple gets to a certain mass, the weight of the Apple becomes greater than the strength of the stem and gravity causes it to break off the tree and fall to the ground (I know, Duh!, but modern physics is based on this guy figuring it out). 

When you want an apple you can either wait for nature to take it’s course or you can try shaking the tree to knock a few Apples loose, even though they weren’t quite ready to fall just yet.

A stock is much like that, Apple computer’s stock in particular looked ripe and juicy (overbought) and there were a lot of people standing around under the tree thinking it would fall to a more reasonable price any moment but the tree (the overall market) just kept growing and the Apple stock just got further and further away from what they wanted to pay (myself included).

Since the Apple stock wasn’t really falling on it’s own, some people got impatient and tried to shake the tree, using rumor and innuendo in a quiet market week when they thought no one would be watching.  They did manage to shake out a few shares but, in the new age of rapid electronic media (REM),  rumor mongering will only get you so far…

I’m very proud of the discussions that were held on my web-site as well as much good, factual reporting I have read around the web that kept this little incident from depriving our readers of their shares with what looks to be "much ado about nothing." 

While I have been a huge advocate of "wait an see" while the Apple tree was shaking and we have done very well grabbing calls during the panic, I am still glad we did cover those bets by selling other calls against them.  The real issue, the SEC investigation, is still not over so we will have to wait a bit today, perhaps pick up a few higher calls with our profits from our earlier trades as momentum plays but let’s not lose our heads as we are not out of the woods yet and that’s still one pretty big apple we’re sitting under!

Tune in later and we’ll figure out our best play for this one

It’s really too bad the "scandal" looks over so soon because I had a great idea for a new Apple commercial using the beloved characters, PC Guy and Mac Guy:

This is an ad that Dell or HP should have ready if it does indeed turn out that Steve Jobs was directly involved in options shenanigans:

We open the ad as usual but just before they start a bunch of guys with SEC jackets on swoop in and grab the Mac guy, telling him he is in violation of this and that securities rule for stock option manipulation and fraud.

Mac guy is dragged off camera saying he didn’t know about those rules and his accountants told him it was perfectly legal but eventually just starts screaming out: "fascists."

A few more SEC guys come in and set up a coffee table and invite PC guy to sit down with them and they ask him for a copy of his balance sheet, which he whips right out.  They look over it quickly and say "nice work – looks good to us" and they offer him some donuts.

Then the Mac guy comes back on screen, being led away in cuffs and says to the PC guy "Help me!" and the PC guy looks over his shoulder and says: "Well it looks like you should have paid more attention in accounting class – Art Boy!"


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  1. Jacox Boy

    From AAPL’s 10-Q and 10-K:
    Based on an analysis of the findings of the independent investigation, the co has recognized total additional non-cash stock-based compensation expense of $84 mln after tax, including $4 mln and $7 mln in fiscal years 2006 and 2005, respectively. The restatement arises solely from certain stock option grants made between 1997 and 2002; the investigation found no grants after December 31, 2002 that required accounting adjustments. and to quote:
    “The special committee, its independent counsel and forensic accountants have performed an exhaustive investigation of Apple’s stock option granting practices…The board of directors is confident that the Company has corrected the problems that led to the restatement, and it has complete confidence in Steve Jobs and the senior management team.”

    JB

  2. Jacox Boy

    AAPL started trading at 6:10 AM today, now at 84.4.
    JB

  3. Pitch78

    http://www.msnbc.msn.com/id/16390197/

    Apple’s own options probe finds no misconduct
    Company has ‘complete confidence’ in CEO Jobs despite irregularities

  4. Pitch78

    Apple (AAPL)files delayed financials – Says Steve Jobs did not benefit from the improperly recorded options grants.

    From Cramers site

    Yahoo!My Yahoo!Mail Make Y! your home pageYahoo! SearchSearch:Welcome, pitch1978
    [Sign Out, My Account]Finance Home -Help

    HomeInvestingNews & OpinionRetirementBanking & CreditLoansInsuranceSmall BizSpecial EditionsColumnistsPersonal FinanceInvesting IdeasMarketsCompany FinancesProvidersGet QuotesSymbol LookupFinance Search

    AP
    Apple Says Options Probe Clears Execs

    http://biz.yahoo.com/ap/061229/apple_options.html?.v=10

  5. Jacox Boy

    Phil:
    Excuse me, off the subject, but the source of the “Interactive Physics” page at the top of the page? I have a 10 year old I am homeschooling. Thanks.
    JB

  6. Pitch78

    Jacox

    http://www.design-simulation.com/

  7. Scott Trigg

    Phil,

    It looks like the markets will be closed Tuesday as well. Long weekend.

  8. Pitch78

    Advice from Forbes.

    Sell Apple (nasdaq: AAPL – news – people ) and take your profits. Monthly sales of iTunes fell 65% in 2006.

    Guess they missed all the articles about iTunes being pretty much irrelevant to the bottom line.

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