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!
Phil, in your AMD idea of this a.m. you state "so if it drops to .50, we DD". Are you referring to a drop in the underlying Stock, the value of the BCS or sometinhg else? TIA
Willie – I would liken the VIX to Romney the flip-flopper and the VXX to Corzine the Corziner.
Iphones/AT&T – Just saw that AT&T's iPhone sales are up 1M units from the previous quarter despite supply constraint issues. Again, seems good to me but what do I know…FB has a P/E of 100+(the makers of virtual crap and annoying ads) yet is up 20%+ and Apple with a P/E in the low teens if on the verge of dropping. Go figure.
lnk/AT&T – they don't break it down by iPhone 4 vs iPhone 5, right?
Nicha – No, not that I could see.
IPAD Locked?
Can anyone tell me if I buy a Ipad with Cellular, and I take it to another country, can I buy a SIM chip for it and use the data. In other words, is it Unlocked to begin with, or are there carrier restrictions like the Iphone?
Zipla / on oil: I'm always cautious about the dollar level, both with stocks and commodities. The U.S. economy has likely bottomed, Europe very likely not. The end game on Europe isn't Spain or Italy, although those countries may precipitate it. It's France & Germany — the French 10 year yield rose today while the German 10 year fell, for example. This will evolve [or, rather, dissolve] relatively slowly, but the pace of U.S. recovery will tend to accelerate the deterioration of Europe's finances, as investors continue to move money out of Europe. I know Spaniards who have never owned an overseas investment who are actually flying around the U.S. seeking project opportunities, something never seen in past years. Plus the wealthiest man in France, the head of LVMH,, Bernard Arnault, has applied for Belgian citizenship. Not a good sign. It will be a slow meltdown, but the heat is inexorable. If you see an actual Frenchman on a U.S. investment tour, you'll know the end is nigh.
And poor Romney — "with friends like these…." http://www.bbc.co.uk/news/world-us-canada-20054737
Kustomz, How many jobs are expected to be created by the bridge construction?
Burrben: Don't know the answer directly, but when I switched my iPhone for a Samsung, I handed my iPhone to a local guy who unlocked it — removed the chip, obtained, installed and activated a local carrier-enable chip, for $150. Of course, I'm not in the U.S., so it's standard fare around here.
Education – money isn't the only factor. Notice that California isn't in top 10, although Californian teachers in top 5 compensation wise.
You can argue that we have take into account cost of living,
then Minnesota teacher salary is just #23. NY 22, NH 45, NY 34, MD 27, IA 30, ME 47
(http://www.teacherportal.com/salary/Alabama-teacher-salary)
Those states are getting good results and able to keep cost under control.
Burrben–yes, you can get a sim card in another country and use it–most often they cut it to size (ipad has a micro sim card)—- I used my ipad on my trips
Phil—could you please give your opinion on /RB—TIA
Phil
I am travel from the 1 to 12 Nov. Away from my computer,
What would you recommend for cover?
Thanks
Burrben/I have iPad 1(ATT) and though they are loath to admit it, it is unlocked. I don't know about the iPad 2 & 3, but the 3G in Europe (at least) seems much faster than here, so the 1 is adequate. I have used Orange in Spain and ITM(?) in Italy.
Phil/ Irobot is recentring on home robot business and I quite like that move
MAR put 17.5 are $1.55
MAR call spread 15/20 is $2.90
If IRBT stays above $16.90 (9% down from here) the trade breaks even
Do you see a better trade idea?
(I will wait for AAPL earnings to put on the trade)
Good day for a stick. Maybe even a carrot
AAPL/Phil – Wow. Haven't made a peep in ages. Anyhow, I liked and am in the Nov 635-665 bcs you mentioned the other day. Think I paid about 11.25. Tho I'd rather not be in anything – esp AAPL – around earnings, I like the little to no-risk element here. To confirm: if they tank Thurs-Fri, I'm just shopping for a January put to sell for 12-ish – and hopefully get as low as 500-ish – yes? That is just a nice trade, PD. .
Phil,
Nice call on oil holding $85. I got into the Nov 32 calls based on your conviction. I dumped the 33's at the open this morning for a penny loss. Let's see if it can hold now!
IACI/Rpme – They forecast a loss for next year, that wasn't expected. Some whole thing going on with cancelled trades too.
USO/Zip – No just the weeklies, the longer ones have plenty of time to bounce. Just silly to waste a nickel that has no chance of hitting on the weeklies.
IPhone/Ink – I agree but amazingly, AAPL languishes.
AMD/Hemas – Yes, just noting a very bad case and we're still not in terrible shape shy of BK.
LOL Ink – Good VIX/VXX guide.
IPhones/Ink – If they are up 1M from 4M then we can infer a 25% sales bump for AAPL in a Q that everyone assumes will be lower than the last – what a blowout potential!
Republicans/ZZ – I can't wait for some rapist to use the defense that he was only doing God's work… This commercial is not good for Romney's now "soft on pro-life" image that he's been cultivating this month.
California/Lol – Yes but you have to take into account cost of living. You need to be in top 5 in compensation to live there. Who can afford to be a teacher in LA or SF? It's not at all apples to apples to just pick a number and say it's a "fair salary" – the real way to do it is compared to average income for college grads in the state with similar degrees.
/RB/Savi – I'd stay away. Maybe they are driving it down into the election. Keep in mind it's not to favor Obama but incumbents in general – none of whom are very likely to be voted in by people who fill up a $75 tank on their way to the polls.
IRBT/Lionel – I love those guys, we used to buy them when they were around $10 and then they got expensive ($39) and we lost interest. Now back to $17.50 but that fiscal cliff makes it hard to buy anyone who makes money on defense. I'd wait and see what they can hold before making a big commitment but, long-term, I still like them – especially if Romney is elected and he starts another couple of wars to pay back his buddies. They guided way down and that's without the fiscal cliff. If Obama is re-elected and goes through with his insane peace plan – then the poor Afghans won't have any more IRobots to blow up on a daily basis. They are currently forecasting a 50% drop in military robots going into 2014 so I really don't think there's any hurry to rush in.
chasw, they say 11,000 jobs and 1600 permanent.
Yes, we need more ships in the Navy:
http://www.motherjones.com/kevin-drum/2012/10/how-strong-american-navy
I guess we could make a case that it would be good stimulus spending but then why does stimulus only work when it's defense related?
Wow, forget oil, gold is testing $1,700.
Nice USO adjustment Button!
Oil for futures players – Notice how, if you play the system, which is not very complicated, it's generally very effective. We failed to make $87 this morning so no play. We broke right below $86 so no play and then we finally bounce at $85 and now $85.74. Even if we took a dime loss at $86.50 and $86 (though that should never have been played) and $85.50 – that's .30 and this move up still gives a .30+ profit. The whole key to the Futures is making a quick exit when your levels don't hold – there's always another chance to play.
Naval power/StJ – Well and then you could consider that one of our current ships could hunt down and wipe out the entire 1916 fleet in a couple of weeks…
FU PNRA!!!
Thanks Phil on IRBT
Thanks Phil
Stimulus/StJ – Absolutely does not work when Defense related. When you pay $1,000 for a single hammer instead of $10 – you put 100 hammer-makers out of work. That's the fallacy to the whole thing – defense spending, like health-care spending, disproportionately goes to profits for the donor companies.
PNRA/BDC – Told you so.
You're welcome Lionel.
You're welcome Savi. Best to only bet when we have a solid premise. This early in the cycle and with politics in play – it's just too risky – especially with supports broken.
Navy – it's been awhile since we've been measuring the size of a stick.
CSCO falling off a cliff! Word is out that their basic business – routers & switches is under attack. Time to sell puts??
Nicha – I read that ATT appears to have sold 1.3M iphone 5s and VZ is estimated to have sold about 615k in Q3. If those numbers are accurate and considering the iphone 5 was rolled out in 22 countires in September, 5M units sold in q3 seems light to me. I guess we'll find out if they actually get counted in the Q3 report.
I need to start posting some possible earning plays! I'll look tonight what is on deck tomorrow besides AAPL!
Stimulus/Phil – To your point, I read yesterday that the DoD is spending $750k to build a soccer field in Gitmo. Unless they have to move a mountain, I fail to see how it costs $750k to flatten some ground and draw some lines/put up some orange cones.
CLF is tonight AH StJ
CSCO / Button – The lows since 2009 is $13.49. The Jan 15 13 puts are now $1.55 so worst case you get CSCO at $11.50 or so. That's 15% lower than the lows of 2009! Margin is about $1.3 so about 115% return o margin in about 2 years with a company loaded with cash! That's a very conservative play. Phil probably has something more aggressive.
lnk/AAPL – wudnt you add those numbers 5m + 1.3m + 651k to get to 7m?
AUD breaking out and AAPL looks like it wants to run
CLF / lnk – Let me check what we have for them.
BMRN – Nov $32 P STO for $1.10.
Nicha – Not sure. I think that 5M they reported might include the ATT and VZ sales as the iphone 5 was released on 9/27. I guess we'll find out tomorrow.
SO much for BREAKING out
Phil—I have the AGQ Mar 58/75 ($10.30/$5.30) bcs —–sold some ABX Jan 15 30 puts against it—should I roll down the 75 caller?–how do you suggest I adjust this position?
Thanks
CLF / lnk – OK, they move about 5% on average following earnings. The estimate is for $1.05 but the whisper is for a miss at $0.99. They are all over the place with beats and misses – beating 55% of the time on earnings but only 25% on revenues and they never raise guidance.
The weekly 43.5 straddle pays you about $2.55 which is about 5.8% so not out of line given we expect a 5% move! Not something I would jump on. I guess you could sell calls in anticipation of a miss and be ready to roll. There seems to be a decent resistance line around 46. Like I said, not crazy about that one. Maybe Phil has an idea.
Nasdaq still under 3,000, Transports down 1.65% today, only 5,022. SOX still up but only slightly. Transports below 5,000 very bad as is the Nas at the moment but it's 4 minutes to Bernanke!
CSCO/Button – I would not go after falling knives in this market. Let them find a floor – they are just under the 200 dma now ($18.30) so, until they are back over – you're not missing anything.
IPhones/Ink – AAPL just said 5M first weekend and that was, I think the end of the quarter. But, what's interesting is we THOUGHT the old IPhone sales were weak but T says total sales were up 20% – that's a big deal.
Soccer/Ink – Exactly, government spending on Defense creates about 1/10th the amount of jobs as spending on infrastructure – it's ridiculous.
Fed Statement:
What more can you expect them to do?
Nice P-bar…..
If the Fed isnt taking any further action AAPL earnings must be good!
Ann Coulter…you can kiss his arse…..Republicans, get a grip.
Ann Coulter – A woman with a laryngeal prominence? 😉
Dow volume 60M coming up on 2:30. Essentially the indices are flat.
AGQ/Savi- That spread is down to $2.50. The ABX is fine, still 20% in the money but good time to spend $2 and roll the $58s down to the $52s, which are just $3 out of the money and you can roll the $75s ($1) down to the $66s and gain $1 back so net $1 to roll the spread down $6 is a pretty good deal. With gold at the $1,700 mark, you could risk doing your roll and buying back the caller and not covering unless gold fails to hold $1,700. Silver just bounced off $31.50 so that's another line you can use for a sell trigger.
Fed/Lionel – Good point for the Appleconomy.
Coulter/Pharm – Boy is that guy barking up the wrong tree. Nice letter though.
Yes, speaking of trees:
Yeah, that Andy Coltour is one strange dude…… 😉