Monday Musing – Our AAPL Trade Idea is Up $6Bn – Should We Let It Ride into Earnings?

Posted on the 28 October 2013 by Phil's Stock World @philstockworld

That's the gain on my Sept 18th trade idea for Apple, Inc. to utilize some of the cash they have sitting on the sidelines:

How about they (AAPL) sell 2.5M 2016 $400 puts for $65 ($16.25Bn) and, worst case is they have a buy-back of 250M shares for net $335 ($83.75Bn), which is about what they are planning anyway over 2+ years (and they have $180Bn of cash and are making $40Bn more per year!).  If the stock is over that price, they can bonus their 75,000 employees $216,667 each and, if not, they were going to do a buyback anyway and this saves them money!

Those puts are now $41.25.  It's too bad for AAPL's 75,000 employees that they didn't listen to me, they would have been getting $79,166 each already – just 40 days later.  Even if you didn't have the margin to promise to buy 250M shares of AAPL at net $335 ($41.875Bn), any portion you did have would have returned 36% in 40 days. 

Making 1% a day selling risk to others is the cornerstone of PhilStockWorld's BE THE HOUSE, Not the Gambler strategy that we're emphasizing in Q4 and you can see it in action in Part 2 of our September Trade Review, where we sold tons of premium on trade ideas that made tons of money in very short order.  The margin on the short puts is "just" $40 per contract, so it's a very margin-efficient trade as well, that has, so far, returned 59% on that margin in a month + 10 days. 

Obviously, unless you really, Really, REALLY want to own AAPL for net $335, you should take your 59% return on margin and run at this point – it's not nice to risk $79,177 bonuses on earnings, no matter how much of a fan you are of a company!  We reluctantly had to place some covers on AAPL positions in our virtual portfolios because, as you can see from the chart above, we already got a 15% move in the underlying stock from our bottom call in September.  

As to the broader market –


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