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Tuesday, February 7, 2023

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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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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!

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

How are we doing? In 1916, America controlled about 11 percent of the world's naval power. In 2010, we controlled about 50 percent. We may have fewer ships than we did during World War I, but we carry a way bigger stick than we did back then. Measured in the only way that makes sense, American naval strength today is greater than it's ever been in history.

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?

FU PNRA!!!

Thanks Phil on IRBT

Thanks Phil

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.

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? šŸ˜‰

Yes, speaking of trees:

Yeah, that Andy Coltour is one strange dude…… šŸ˜‰

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