How to play the new all time high?

  • Posted: 20 June 2010 02:03 AM

    To the surprise of few on AFB, AAPL made an all-time high last week.  At Friday’s close we are up a nice round 250% from the SJ-rumors-low of January ‘09.  What to do now?

    As AFB frequent flyers know, I am a long-term bull.  I am primarily just long a bunch of AAPL stock, but from time to time I try to make a little money with options on AAPL as well.  And while my core position is never touched, I do add and subtract shares from time to time.  So I am looking at the current milestone as an occasion to ask myself if I should be making a trade.

    The weekly chart gives what I read as mixed signals.  The uptrend is intact.  Volume is OK.  But both MACD histogram and RSI are weak.  Stochastic indicates overbought, but short is above long.

    The fundamentals are pretty good, huh?  Both iPad and iPhone4 are mega-hits.  Mac sales are not too shabby either.  The only negatives I can find are both caused by positives:  iPad may have given a temporary hit to Mac, and iPhone4 may have caused some slacking off of iPhone3GS sales in June.  But earnings, when announced next month will be great. “We are very pleased to announce ...”

    I am inclined to put on a bullish position, but intending to run for the exits if we don’t hold 265.  Calls or Puts?  Naked or Spreads?  Implied Volatility was running in the low 30s until the flash crash, when it spiked up.  Then it has trended down to where it is now around 37.  I am inclined to think it could go a couple points lower, so I am considering three strategies 1) selling ITM Call time spreads, selling naked puts, or just buying a few more shares.

    Thoughts?

    Any bears out there?

         
  • Avatar

    Posted: 20 June 2010 02:56 AM #1

    capablanca - 20 June 2010 05:03 AM

    ... The weekly chart gives what I read as mixed signals.  The uptrend is intact.  Volume is OK.  But both MACD histogram and RSI are weak.  Stochastic indicates overbought, but short is above long ...

    Situation similar to Sep 07.  Refer to this weekly chart for AAPL.

    I’ve sold all Jun/Jul calls that I’ve acquired when AAPL is between $240-$255.  Left with Oct calls and spreads.  Would continue to sell them as AAPL rallies. Some at $280, some at $286 and some at $300.  However, if AAPL closes the gap without breaking above $275, then I would close all positions.  This plan is based on EW interpretation (see EW thread for more details).

    Signature

    Stay Hungry. Stay Foolish.  - Steve Jobs

         
  • Avatar

    Posted: 20 June 2010 05:56 PM #2

    I think we deserve more 10 baggers than MSFT.  We’ve waited longer, worked harder, and after all, it was all Steve’s idea in the first place.
    Hosting provided by FotoTime

    [ Edited: 20 June 2010 06:12 PM by zulu ]      
  • Avatar

    Posted: 21 June 2010 01:53 PM #3

    A month ago, I made some simplistic projections to show AAPL stock price month by month in order to achieve different target prices.  At $ 275, AAPL is now one month ahead of the most ambitious of those projections.  The August (end of month, first of month ... don’t remember) projection says $ 289.

    In terms of PE, I have designated a value of 25 for long term sustainability.  Optimistically, a value of 30 is reasonable.  At the current value of 23.3, AAPL is undervalued by at least 7 %.  Given the powerful product lines and consumer awareness, I would say Apple is undervalued by even more. 

    I’m a long-holder.  I anticipate moving some holdings to higher level calls.