Apple: If You Must Own It, Here's How To Do It

| About: Apple Inc. (AAPL)


Ignore the noise: The recent earnings report on Apple can be summed up with a few statements.

We already know AAPL is susceptible to seasonal trends, with the present time typically being the beginning of a downtrend.

Does this mean you should hold?

Apple's (NASDAQ:AAPL) recent earnings report can be summed up with a few statements:

  1. Cash growth does not matter, as debt eats up any real growth.
  2. Sales are down in every geographic region.
  3. Success in China virtually equates with success for AAPL stock

Now, let's calm down and step back for a sec: Is any of this really hard to believe?

We are talking about the largest and most admired phone company in the world. The recent earnings report reflects an economic downturn, not a loss of market share. Samsung (OTC:SSNLF) is not taking over, Sharp (OTCPK:SHCAF, OTCPK:SHCAY) is not taking over - people are simply buying fewer phones for reasons that include hard times and a decline in need for the newest incremental change in iPhones (Apple used to make novel upgrades, mind you).

Apple already controls the market, and when the market begins to shrink, Apple has little recourse. Apple has little growth, little upside. Apple Watch will never subsidize the dwindling demand for phones and tablets.

Steve Jobs, before passing away, left Apple with roughly half a decade of innovative ideas in the pipeline. Those five years about up. From now on, Apple is on its own.

What I'm getting at here is that for the Apple of today to revitalize itself as the Apple of yesterday, it must create a new market, just as Jobs did. Ask yourself: Does the current Apple have this ability? Or will the current Apple continue as the king of phones and nothing more?

As I stated in this article, Apple must find a new route if it is to grow. Their other option is to accept reality, sit back and play the value stock role. Both options will work for the stock, but they have different consequences; the latter should dispel many of the current fans, while attracting more conservative investors looking for reliable value and (hopefully) growing dividends.


We already know that AAPL is susceptible to seasonal trends. My prediction that AAPL would fall last winter was little more than statistical analysis. Few investors apply such analyses to their decisions because of the prevailing misconception that "you cannot time the market."

For those who believe in statistics, read on, because statistically, this is the time in which things at AAPL begin to wind down:

AAPL has a habit of rising in March, peaking in April or May, and then making a comeback in July. Does this mean you should hold? This depends on where you believe the market is headed.

Apple during the Market Crash

I believe we are due for a crash this year. Being so, AAPL is the wrong stock to hold. During the last market crash, it underperformed the general market, falling 50%:

Thus, if you believe - like I do - that we will experience at the very least a major market correction this year, moving capital from AAPL to other investments, such as intelligent hedges, makes more sense than stubbornly grasping onto a company that has passed its prime.

Nevertheless, having written 6 articles on AAPL, I know that AAPL investors are highly dedicated to their stock. I never recommend trading on emotions, but if you must hold AAPL, here is how to do it:

Playing Apple During Turbulent Times

When volatility rises, the stock is not directly affected. However, options rise in price, by definition of vega, a characteristic attached to the option pricing model. Right now, AAPL has very high volatility:

With this post-earnings volatility strikes, options that would normally be cheap are now quite expensive. This makes many options trades available to us if we expect volatility to decrease, which it should naturally and if AAPL rises. Thus, those long on AAPL can leverage this fact to profit even more from a bullish thesis.

You can still be long on AAPL without owning the stock. If you are truly bullish on AAPL, you should be willing to sell out of the money (OTM) puts when volatility is high, as their values will drop quickly when volatility falls. Of course, you can do this while holding AAPL simultaneously, but be aware of the opportunity cost.

I recommend you sell puts roughly $10 OTM for the current month. For this month, we would be selling the May 88 puts, which yield us $20 per option in 3 weeks. These puts will quickly fall to $0, at the rate of $3 for every 1% increase in implied volatility, allowing you to walk away with the credit. Of course, you will be required to put up margin for this strategy, but better your money be in margin than in AAPL stock, I say.

Learn More about Earnings

My Exploiting Earnings premium subscription is now live, here on Seeking Alpha. In this newsletter, we will be employing both fundamental and pattern analyses to predict price movements of specific companies after specific earnings. I will also be offering specific strategies for playing those earnings reports.

We have accurately predicted EPS surprises 100% of the time (5/5).

In the most recent newsletter, we are predicting how Amazon (NASDAQ:AMZN) will react after its upcoming earnings report.

Request an Article

Because my articles occasionally get 500+ comments, if you have a request for an analysis on a specific stock, ETF or commodity, please use @damon in the comments section below to leave your request.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.