I'm getting the Apple (NASDAQ:AAPL) emails again. Should I take profits here? Again, that's really a question you can only answer for yourself. Here's my perspective.
Yesterday, I made a trade in the $100,000 portfolio that, given the run AAPL has been on, I hardly considered bearish or even all that risky (within the context of a portfolio I look to quadruple). But man, I did not expect AAPL to move like it did on Thursday. Here are the details of my not very bear credit spreads:
... selling 10 AAPL March $500 calls for $3.90 and buying 10 AAPL March $510 calls for $2.52. That works out to a net credit of $138 for each spread and a total credit banked of $1,380, bringing the $100K's portfolio cash balance to $81,163 and the total value to $102,998.
Each spread requires roughly $1,000 worth of margin (the difference between the strikes) for a total of $10,000 (I am not counting the credit received there). No matter what happens, I keep the credit received for writing the spreads. If AAPL closes below $500 on options expiration day, everything expires worthless. If the $500 call I sold gets exercised, I can turn around and exercise my $510 call and, if applicable, eat the difference between what I had to sell AAPL for ($500) and what I had to buy it for ($510).
While I still think that trade will work out alright, I sure as heck wish I would have waited a day to make it. That said, if I get assigned, I am more than fine with having to dig myself out of a self-excavated hole.
Apple deserves this. For at least a couple of years now, it has been clear that nobody can come close to its dominance across spaces. And while shareholders have not necessarily had a rough go of it, it has been frustrating at times to see the stock pull back after reporting incredible news. It's sustaining and that's a good thing.
That said, it's not crazy to think AAPL will pull back again. Investors could very easily "sell the news" when Apple reveals exactly when it will release iPad 3. Either way, don't expect this thing to trade under $450 again anytime soon.
All I tell people who write, text and Tweet me about AAPL is to "proceed with caution." I also pass along words of wisdom from Seeking Alpha and Paid2Trade's Robert Weinstein:
If you're not leaving money on the table, you're not making money.
In a StockTalk the other day, I mentioned to a Seeking Alpha reader that Netflix (NASDAQ:NFLX) is "fun to watch." While the stock is definitely ... something ... to watch, I was referring more to the ongoing story that surrounds the company. It's dynamic. And I really think it goes down in history as an instructive and pivotal point in the evolution of new media.
That, in the span of one day, the stock goes down on "bad" news, back up on "good" news, back down again on "bad" news, only to end the day flat on a pop from some more "good" news simply adds to the intrigue.
I really believe the best way to proceed is how I'm doing it in the $100,000 portfolio. Long-dated ATM put options hedged by near-term ITM calls and bull put credit spreads. Keep things a bit heavier on the bearish side of the equation. If the bear case plays out, this thing has an implosion or two left in it in 2012, but it could also continue to run on air before reality sets in.
Quick update on Coinstar (CSTR). The other day I suggested writing $60 March calls against the stock. It's all about taking advantage of a dampening of the enthusiasm. I'm not sure why there was so much excitement around the announcement of a partnership that took well over a year to come to fruition. And, while the quarter was good, isn't Coinstar about to enter the same razor-thin margin streaming business that will soon render Netflix broken beyond repair?
I don't mind seeing a company like Verizon get into streaming. That can only further something like FIOS. I view it much in the same way as I do Amazon.com (NASDAQ:AMZN), another company with money to spend, challenging Netflix. They're not doing it to make a living as a direct competitor to Netflix. Rather they're doing it because it will produce long-term benefits in other core areas of the company.
What's even more shocking to me is that the Canadian government allows Rogers Communications (NYSE:RCI) and Bell Canada (NYSE:BCE) to own a slice of practically every service or entertainment item that matters to most Canadians. The U.S. government might take issue with Coinstar and Verizon increasing their respective footprints. And Fox News keeps telling me that Canada is the socialist republic. Go figure.
Ralph Lauren (NYSE:RL) had a killer quarter. It's been one of my favorite stocks for some time now. But, as much as I love Ralph, I would have a difficult time going long the stock in the near-term. Do you really see RL surpassing $180 or $185 between now and the middle of March? I would not call it my strongest conviction in the world, but a bear call spread, similar to the ones I executed in AAPL, merits your consideration. At the very least, proceed with caution on the long side. It's been a massive run- up 28.5% from $134.30 when I first went bullish on Seeking Alpha last July.
Additional disclosure: I am long NFLX June $40 put options.