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Tuesday, February 7, 2023


Which Way Wednesday – Is the Appleconomy Over?

AAPL is a total disaster.  

There's no denying it now, they had their IPad Mini event yesterday and investors charged out of the stock, dropping it from a high of $633 (which is already 10% off the Sept highs) to close at $613 and that was finally weak enough to get us to capitulate and roll back our AAPL positions to longer-term trades that have less upside but, more importantly, less downside as we are no longer confident they'll be able to turn it around on Friday.   

Notice how silly it seems to talk about how poorly AAPL is performing when the chart on the right pretty clearly indicates it's the greatest stock on Earth but that would be the logical conclusion for a company that's on track to earnings $43Bn this year, which is $81,811 a minute – more even than what they were tracking to make last month, when I set out bottom target at $600 (and that spread is an even better buy now) AND, only 68% of what they are projected to make next year!    

We didn't really think it would hit $600 – that was our worst-case but here we are – at the worst case and, since we are no longer able to say with conviction that it can't get any worse, we had to back our short-term plays to something that buys us more time.  In that same post we liked HPQ at $14.30 and at least they are holding that line and we also had a nice spread on that stock in the same post, which is still holding up as a new spread.  

In that post I mentioned (as usual) our primary hedge being TZA and the straight-up April $15 calls mentioned there have gone up another .40, from $2.50  to $2.90 off our $2.10 entry (up 38%) – not bad against just a 15-point drop in the Russell (down 2%). 

Yesterday, with our hedges already in place (see last Wednesday's TZA hedge and this Monday's DIA hedge) we had the luxury of doing some bottom-fishing yesterday with long trade ideas on TIVO at $9.78, USO at $31.75, AAPL at $623, CMG at $238 and our last trade idea for the day was SQQQ at $41.20 (that one, of course, is another hedge – always look for BALANCE!) – just in case things kept falling apart.  

These are, of course, hedged plays, using options for leverage but, as I often say to stock players, if we like a stock leveraged with options – of course we like the straight stock as well – but we'd prefer it if at least you sold the covered calls!   This morning we had a wide-ranging discussion in Member Chat about AAPL and a long trade idea for the QQQs $65.39), COST ($95.18), AMD ($2.14) and UBRG (0.01).  To give you an idea of what we mean by leverage and hedging – here's my trade idea for AMD from this morning's Member Chat:

Speaking of fair entries.  AMD may be good for the same reason INTC is bad – the landscape is changing and INTC doesn't dominate the new spaces.  It's risky but at $2.14 it's a reasonable gamble. The way I'd play a stock like that is to sell the 2015 $2 puts for 0.72 and buy the 2015 $2.50/4 bull call spread for .30 so you have a net .42 credit and, at $4 you make $1.92 (the credit plus the spread price) and worst case is you own AMD at net $1.58, which is a 26% discount to the current price. 

Think or Swim says the net margin on the puts is just $50 + $30 (for the spread) per contract is all you have to tie up to make up to $192 – a very nice 240% ROI in 2 years if it works out!  We can certainly afford to add 100 of those to the Income Portfolio (net credit of $4,200, using $8,000 of margin and committing to buy 10,000 shares at net $1.58 ($15,800) – so if it drops to .50, we DD and we're in 20,000 shares for $1 and sell 2017 calls for .50.  

See how that works?  Rather than spending $21,400 cash now in our virtual portfolio to buy AMD, we use margin to collect $4,200 in cash against our promise to buy AMD for net $1.58 in Jan 2015, which is 26% off the current price.  So the play is self-hedging against a 26% drop, ties up no cash (we have a credit) and can net us a $19,200 profit in 2 years if AMD just goes up .36 (17%).  Aren't options fun?  If we bought the stock, AMD would have to go up 90% to make the same $1.92 per share and, of course, we'd want to protect it and that might cost us some money anyway.  

As I mentioned yesterday, part of the market weakness was a result of Dollar strength and the Dollar climbed all the way to 82.23 yesterday as the Euro was slammmed all the way down to $1.92 on the usual paranoia caused by the dysfunctional EU.  In pre-market trading, the Dollar fell back below 80 and, if it stays down there, we have a chance for a nice bounce today.  Without taking the time to explain our system again (the 5% Rule) – the lines to watch today are:  

  • Dow 13,200 is a weak bounce, 13,300 is a strong bounce (we don't become more bullish until we hold strong bounces through the close).  
  • S&P 1,420 is weak, 1,430 is strong. 
  • Nasdaq 3,030 is weak, 3,060 is strong, 3,000 must hold. 
  • NYSE 8,250 is weak, 8,300 is strong
  • Russell 815 is weak, 820 is strong 

So we're not going to be in the least bit impressed by any move today that doesn't hold our weak bounce lines and we're still going to be very cautious until those strong bounce lines are taken back.  We have a Fed statement this afternoon at 2:15 and then it's all up to AAPL tomorrow night.  PMI reports are improving in Asia but falling still in the US and Europe so no help from that data.  

Bottom fishing is fun but watch out for the holes in the ice!  


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Oil Lines

R3 – 92
R2 – 90.45
R1 – 88.76
PP – 87.22
S1 – 85.53
S2 – 84
S3 – 82.30

Yesterday's high and low – 88.92 / 85.69

Woohoo FB – Super-like!!

AMD / Phil – INTC doesn't dominate the new spaces, but AMD is nowhere in mobile either. Their 2 lines are competing with INTC (PC) and NVDA (graphics) and they are actually not doing so well against either. NVDA is actually better positioned as it is doing well in the mobile segment with its Tegra3 chip in phones and tablets. ARMH is another interesting company with products in many segments – computing, mobile and industrial applications. But they are quite expensive now though. NVDA and TXN are much cheaper and compete in overlapping segments.

25KPM / Phil – The 25KPA is up to date with the AAPL roll from yesterday afternoon but as I mentioned, that roll is too expensive for the KPM, requiring $90K of regular margin for the spread and the 10 short calls. Combined with the 14 AMZN short puts, it's $140K of margin. Not within our KPM guidelines.

Should we just kill the AAPL position in the KPM and go to the QQQ trade that you outlined this morning? 

Digging deeper in the Chinese PMI:



The table which highlights the direction and rate of change shows that the inventories are subsiding and both input and output prices are rising, which is excellent news on the surplus inventories front and suggests demand might indeed actually be picking up. Although “backlogs of work” are also shrinking — and faster. It’s a little too early to say manufacturing is truly recovering.

More ominous is the line “Employment: Contraction, faster rate”. This trend began to show up in July and it’s exactly what you (and the Chinese Communist Party) really don’t want employment to do…

And Europe is definitely in need of something other than austerity. It doesn't seem to have the desired effect:


Going in the wrong direction!

Good Morning!

The net on the AAPL spread is $41.77 excluding the open short sales.

AAPL – I have a toe in the water and left a Jan. 13 $625 call uncovered last night.  Up $500 this morning.  I'm thinking about covering by selling a Nov. call, but trying to figure out a good strike price.  I don't think I will mess with weeklies before tomorrow night, since I don't watch the markets much during the day.  Any suggestions on strike prices?

HPQ Idaho news
A $180,000,000 hangs on Prop 1,2,3 that is bombarding the media saying don't let unions destroy education in Idaho.
1. Idaho teachers are not unionized and the lowest paid in the nation.
2. Those Props esp. 3 need to pass or the HPQ contract is void.
3. Now there is an investigation into the advertising mess.
3. All local TV is owned by FOX so what you hear is claiming the investigation is a fraud.
I report you decide!

Nicha – thx.  Read him every day….his is a contributor to our newsletter as well.

It is early and you also wouldn't know that the proposals are to give every teacher and student in the state laptops maintained by HPQ and close down those expensive schools and eliminate lots of teachers.
The add say kids are not learning how to think but how to pass tests linked to No Child Left Behind.

Mid-week update for the Strangles portfolio:

Navigating the rough waters quite nicely so far!

StJ / Phil,
I have not participated in any trades lately, but it looks like you have been running a very active strategy with AAPL calls.  It's hard to tell from the portfolio sheet, since many trades are already closed.  Just curious what the current net gain/loss is to-date.  

I will update the KPM when I get some guidance from Phil on the AAPL position.

Since you mentioned HPQ instead of AAPL I thought you all should know that HPQ has signed a voidable contract. To me that sounds like a company looking for any port.

AAPL / rky – I keep track of the P&L for AAPL online. Right now we are showing a -21K loss on the closed position.

What do you still like if anything on the long term put list?  I was in AMZN for a while and took profits.  Found this to be a great hedge as the market was dropping.  I am back in V Jan 13, 135 P.  Looking for a few more hedges at this point.

Legal expenses may cut into Tesla's cash reserves …
U.S. Dealer Group Seeks Tesla Meeting on Retail Plans – Bloomberg

Hi Phil,
I followed ur SCO NOV 47 call short position — have a small loss any idea on the roll please. Looks like Crude is going for 80

Phil / GLW
My portfolio is still 90% cash, so have been looking at my watch list and waiting for good prices. Is it still too early to get GLW off the drop today? I can do a B/W with 2015 $12's at   $4.65 for net $7.75/9.88 making dividend 4.6% 

A former Idaho doctor complained to me she could not find decent help. Said that colledge educated was high school when we went to school on the east coast! Closed down, moved to Florida where her Daughter lives, and did it after the housing crash. Smart Doc!

Don't see when you got out of weeklies, or do you mean when you added Nov's to cover weeklies?

$80 oil, That is a start to recovery!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

We are still in the weeklies. Both the Oct4 and Now 1 33s.

Phil—I did the roll and sold the Nov 655 calls on AAPL–is there anyway to still keep track of this

Thanks Phil

Here is the updated 25KPM portfolio. Out of AAPL because of margin. We are now in a QQQ spread.

NY Islanders moving to Brooklyn! Holy crap, Islander fans heads exploding all over Nassau county! The only time Islander games will be sold out is when the Rangers play away vs the Islanders. Big mistake.

Free bridge that may never happen thanks to lobbyist

Phil- I may have missed your comments if any on playing AAPL earnings on the downside. If you were to do that what would be an optimum strategy if margin is an issue. Thanks.

The Nasdaq comes and goes with Apple.

That would be one good reason to buy AAPL now:


We noticed during the iPhone 5 launch that Apple had a big caveat with its Lightning to 30-pin adapter: no video or iPod out support. Now that the new iPads are here with that same connector, the problem's been partially rectified — for a sum. Namely, you can grab the Lightning to VGA or digital AV (HDMI) adapters for a rather princely $49, though there's no sign of any iPod support yet. If you're still holding out for generic models instead, you may want to rethink that plan, as there's a control chip inside each, and so far only Apple holds the authentication keys. Also, a new $19 12W USB power adapter (which connects directly to the Lightning port) has also appeared for the 3rd and 4th generation iPads, bumping the previous version's 10W — meaning your slate might get charged a bit quicker.

Geebus, these video adapters cost about $1 to make and they sell them for $49 with a control chip inside so that you cannot buy a generic brand for 1/2 the price.

Anyone know why the VXX is up even with the VIX down 2.5%???

kustomz:  I hear they're changing their name to "Ice Dodgers."

Iflan –  what would you do if you had the APPL Jan 620's

IACI beat on everything, why are they dropping like a rock, attached to a larger rock?

When you say – Right, we held the weeklies hoping they'd improve.  Not looking good now.  "5% off on USO so we need $90+ oil by Friday to get out of the weeklies.  If we don't get a bounce this afternoon to at least $87, probably better off taking the .05 off the table."
By that you mean both — the Oct and the Nov 33s — or just the Oct and keep the Nov to see if we can get some money back?

Just a guess but institutions are not worried (VIX) and the sheeple are (VXX)


Morning All – I was looking at A&Ts numbers and in Q2, they sold a total of 5.1M smartphones.  In this recent quarter, they sold 6.1M smartphones of which 4.7M were iphones.  Seems like decent iphone sales numbers to me. 

UK FTSE +0.4%
German DAX +0.3%
French CAC +0.3%
Spain IBEX +0.4%
Italy MIB +0.8%

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