Go on, take the money and run – Steve Miller Band
Apple Heads are not going to like this one, but I can assure you that after reading it you’ll understand it and the options trading strategy as well.
Remember back when the stock hit $700 a share? How many of Apple holders were drinking the $1000 price tag kool-aid? Oh yeah, it was being passed around. Remember? When it started to decline, how many had regret, saying they wish they were not greedy. I heard lots of regret, and also ‘next time I will be smarter’. But as the stock has climbed over $100 since the last earnings report, is at a multi-year high and within 10% of that coveted $700 level, I’m once again hearing the masses saying ‘to the moon, Apple’. Fool me once, shame on you – fool me twice, shame on me?
So, the last earnings report brought a huge buy back, stock split and some better results (first time numbers including the China Mobile deal). All in all, the results were decent but not anything to scream about, but Apple doesn’t move on results – it moves on the optimism over the future. The conventional wisdom believes a new iPhone is coming and the hope is that it’ll be a strong competitor to Samsung’s big screen phone. Naturally, Apple is always tight-lipped about products so anything out there is just wild speculation. But Apple growth is about NEW products and offerings, and if they don’t deliver in this area then the malaise will return, and more disappointment – rinse and repeat.
Now, why am I suggesting to sell Apple? Let’s be clear, the stock is a big favorite among institutions, hedge funds and the public. But as the stock floats higher we end up with a false sense of security that the stock will never go down. Each up day, week builds confidence in us, but realize we do NOT control the stock price movement. The only thing we control is our trades/investments. I preach everyday to take profits when you have them, but many do not follow the advice for greed is a powerful emotion. Further, who wants to be left behind – even if you take the stock off the table it can continue to run, there is no worse feeling.
When the stock was down under 500 last year it seemed the old highs were an eternity away, and many swore off Apple forever. More emotions, I certainly understand that, especially if you took a round trip or have a loss. But as the stock bottomed and created some buzz the interest returned, and then some news hit that caused more excitement. We’re sitting about 75 bucks below that 700 marker, and don’t you believe EVERYONE has that number in their head? Absolutely! So, do you think everyone who says ‘sell at 700’ will be able to fit through that door all at once? Further, don’t you think the buyers of the stock already KNOW this is being considered? There is a huge gap at 700, take a look at the chart below.
Apple current sentiment? Very complacent, the Apple ‘love’ is in gear right now and NOBODY wants to be separated from their beloved Apple. Apple volatility reached a multi-month low recently and is climbing slowly, but it’s still very low (likely rising now in front of the WWDC event early in June – uncertainty).
I like to sell before everyone else does, preferring to book a profit when I am ready and not calling a top. If I’m in on a stock I will consider several tactics, mostly options trading strategies. There are some great ways to protect a trade without selling out entirely, creating income and giving yourself a chance to participate in some upside. If long the stock, you may consider selling upside calls against it, participating in some upside but also protecting the position – and perhaps even buying some puts (remember, options are cheap when volatility is low). BL