Go on, take the money and run…. – The Steve Miller Band
Apple Heads are not going to like this one, but I can assure you that after reading my analysis of Apple, you’ll understand the logic behind this options trading strategy.
Remember back when the stock hit $700 a share? Many Apple stock holders were giddily drinking the $1,000 price Kool-Aid, which was being passed around with reckless abandon. When Apple started to decline, one can only imagine how many stock holders wished they had not been so greedy. I, for one, heard a chorus of, “The next time I will be smarter.”
Fast forward to today. The stock has climbed more than $100 since the last earnings report. It is at a multi-year high and within 10% of that coveted $700 level. And once again, I am hearing the masses chanting, “To the moon, Apple!” Fool me once, shame on you – fool me twice, shame on me?
The last earnings report brought a huge buy back, a stock split and some better results (it was the first time numbers included the China Mobile deal). All in all, the results were decent but not anything to scream and shout about.
Apple, however, doesn’t move on results – it moves on optimism over the future. Conventional wisdom believes a new iPhone is coming, and the hope is that it’ll be a strong competitor to Samsung’s big-screen Galaxy. Naturally, Apple is always tight-lipped about products, so any information out there is just wild speculation. Apple growth hinges on NEW products and offerings, and if they don’t deliver in this area, then the malaise and disappointment will return. We’ll be on a rinse-and-repeat cycle.
This takes us to why I am suggesting options traders 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 and up-week builds confidence in us, even though we do NOT control the stock price movement. The only thing we do control is our trades/investments. Every day, I preach to take profits when you have them, but many do not follow my advice. Greed is a powerful emotion. Furthermore, who wants to be left behind? Even if you take the stock off the table, it can continue to run up, and there is no worse feeling than knowing you missed out.
When Apple was under $500 last year, it seemed like the old highs were an eternity away. Many swore off Apple forever. An emotional decision for sure, and one I understand, especially if you suffered a huge loss. As the stock bottomed out and created some buzz, the interest returned. Then some news hit that caused even more excitement. Here we are today, sitting about $75 below that $700 marker (I bet EVERYONE has that number in their head!). Do you think everyone who says, “Sell at $700!” will be able to fit through that door at the same time? Don’t you think buyers already KNOW this is being considered? (There is a huge gap at $700 – take a look at the chart below.)
Apple’s current sentiment is very complacent. The Apple “love” is in gear. NOBODY wants to be separated from their beloved Apple. Just take a look at volatility. It reached a multi-month low recently and is climbing slowly, but it’s still very low. (It is likely rising now in front of the WWDC event early in June, which spells uncertainty).
I like to sell before everyone else does, because I like to book a profit when I am ready. I don’t call tops. If I’m in on a stock, I will consider several options trading strategies. There are some great ways to protect a trade without selling out entirely, create income and give yourself a chance to participate in some upside. If you’re long on the stock, you may consider selling upside calls against it. This will allow you to participate in some upside while also protecting the position. Perhaps you’ll even buying some puts (remember, options are cheap when volatility is low).
Sell Apple and take profits now? Heck yeah!