In last Wednesday's Webcast (Our Top Picks for 2014), I noted that AAPL was once again going to be my pick of the year (it was our top pick for 2013 too) because, once again, not only was it cheap but BECAUSE we could construct a ridiculously cheap option spread for it that can once again deliver a massive return of 500% or more.
Last year's trade idea for AAPL was to buy the Jan 2014 $400/500 bull call spread at $52.50 and sell the 2015 $350 puts for $38.50, for a net $14 entry on the spread. Today that spread is net $91.20, up 551% in less than a year – beating the S&P by 20x!
This year's spread (see Wednesday's post for details) is a bit more ambitious with the 2015 $500/650 bull call spread at $44.30, offset by the sale of the 2016 $400 puts for $30 for a net $13.30 entry on the $150 spread with 949% of potential upside. Well, it's off to a great start as AAPL popped back to $570 this morning (up 4%) as their deal with CHL is finalized. That's getting the Futures very excited as AAPL is 20% of the Nasdaq and the Nasdaq is up 0.75% on the news and the other indexes are lagging a bit, but generally moving higher as well.
That's going to send our indexes all the way to VERY overbought, if Friday's action on Dave Fry's NYSE McClellan Oscillator is any indication. Even if today adds less than Friday's 25 points, we're still going to be well above that 40 line but, once again, we don't really care – because we are mainly in CASH!!
And why are we in cash in such an exciting market? Here's a sobering snippet from the Consumer Metrics Institute's Analysis of the Economy:
For the past two months we have wondered how the BEA's latest growth estimates might impact the Federal Reserve's stance on monetary policy — and particularly the duration and size of QE.
…
You must login to see all of Phil's posts. To read the rest of this article now, along with Phil's live intra-day comments, live trading ideas, Phil's market calls, additional member comments, and other members-only features - Subscribe to Phil's Stock World by clicking here.
To signup for a free trial membership, click here.
