Traders like to trade big events, but there's no reason why investors cannot invest in them. I often look at a major event, collect my thoughts about the future far beyond that event and act accordingly. While the volatility that big news triggers often burns directional traders, it can bring opportunity for long-term investors.
Wednesday, March 7: Apple (NASDAQ:AAPL) Event
It seems like a foregone conclusion that Apple releases iPad 3 in San Francisco on Wednesday. Uncertainty surrounds exactly what features the company decided to include on the device. Plenty of cats add to that speculation as they wonder what else Apple might have up its sleeve.
You cannot predict what Apple will do with much certainty. Nor can you predict how the market will react. If you recall, lots of dopes in the financial and tech media considered iPhone 4s a dud out of the box. Look what's happened since then.
Right now, masters of the obvious can tell you that the best position you can be in is long AAPL stock with an entry pretty much anytime before the last 37 seconds. Of course, that's a joke, but given this nearly-parabolic run you could have run headfirst onto the bandwagon at anytime without cracking your head open.
There's no shame, however, in not having bought in. Fear of buying the top is real. AAPL will pull back. Weakness might not last long, but, for one reason or another, it will happen. While you do not want to miss the train, you also do not want to be the guy or girl who hops on at the last stop before a conductor strike or somesuch takes over.
At this point, if you have not pulled the trigger on a long play, but have the necessary cash in your account to cover 100 shares of AAPL, I would scan OTM put options looking for one to sell. Of course, your forward-looking sentiment on AAPL dictates the strike you'll select. Personally, I would play the possibility of a "sell the news" event on Wednesday and sell AAPL puts with strikes between $500 and $520. No matter what happens to the stock you keep the premium income generated by the call sale. If AAPL sells off, you might get lucky and pick up some shares at a price many of us consider a bargain. If it sells of and stays sold off, you could be sitting on a loss, for who knows how long, depending upon your effective entry price.
I covered writing puts to get long, as well as put spreads, in issue No. 6 of the stock option investing newsletter that hits subscribers email boxes Tuesday morning.
Yep, that's what I am now calling it ... a bailout. And if you are a long-standing SIRI shareholder you should hope it happens.
It's a pretty simple complicated situation with two key perspectives. First, there's the perspective that really, at day's end, it does not matter much.
For the last century, or so it seems, a handful of people who write about Sirius XM have indulged themselves as they argue in circles about exactly how Liberty Media's stake in SIRI is structured and how Liberty can move forward with it on or after March 6th. The back and forth is a bit like the tech geeks who always chime in to defend Research In Motion (RIMM). Just as you can stroke yourself as the smartest guy or girl in the room by talking about the superior innards of a BlackBerry or Playbook, you can become the life of a cocktail party fleshing out the details of a Reverse Morris Trust. Those two displays of ego are just that, because, on the ground, it just does not matter.
It's funny how people have gone round and round for months on the Liberty/Sirius XM thing, yet the Wall Street Journal can sum the entire situation up cogently in about a dozen short paragraphs.
As I noted in a recent Seeking Alpha article, all that matters is the future:
Take a look around you, it ain't too complicated and it's as clear as the swift shift from landlines to wireless. There's a reason why Disney (NYSE:DIS) is working to get its prime programming on as many devices as possible through partnerships with cable companies. There's a reason why Time Warner (NYSE:TWX) went ahead with HBO GO and continues to expand its reach. There's a reason why Reed Hastings sees Netflix (NASDAQ:NFLX) as part of cable television packages in the future and companies like Cablevision (NYSE:CVC) think that's a good idea. There's a reason why Clear Channel (OTCQB:CCMO) continues to brand itself as a digital media company, not a radio company, as competitors agree to become part of the iHeart Radio platform.
I could pat myself on the back for predicting these partnerships - these synergies - last year, but, let's be honest, it was incredibly obvious. I am surprised more people were not beating the same drum.
Sirius XM must become a part of this mix. There is no way in the world satellite radio can survive as satellite radio over the long-term. It's not much different than the reality that broadcast radio cannot survive as broadcast radio over the long-term. We are at the entrance to an era where partnership and consolidation will happen because it absolutely must happen. Interestingly, this is not only consumer-driven, but it should benefit the consumer by giving them access to a wider range of programming, seamlessly, on any device they choose.
While I would never discredit what Mel Karmazin accomplished at Sirius XM, it's time for him to step aside. For better or worse, he's an old terrestrial radio guy. For the record, I love old terrestrial radio guys. They account for a good chunk of my Facebook friends. But, unless he's slick like Robert Pittman, an old terrestrial radio guy should not be running a media company in 2012.
Whatever happens to SIRI in the short-term when - and if - Liberty makes a move will cause a temporary ruckus. As it always does, however, the dust will settle. When it does let's hope the recent insider transactions by Karmazin and other Sirius XM executives were nothing more than part of the office cleaning-out process. Over the long haul, the best thing for Sirius XM will be for people like Karmazin to stick around to show new media executives from Liberty and elsewhere where the break room is.
How would I play next week? I'm not, but if I was, I would buy LMCA. As I noted in the above-linked article, Liberty gets it. It's priming itself for a multi-platform, digital future. In fact, I think John Malone has barely begun building what will be an impressive mini-empire.
Because it's a long-term story that will not develop overnight, LMCA is a perfect stock to scale into over time, on a regular schedule, via dollar-cost averaging. When you build up a large enough position, consider writing covered calls against it, but be careful as LMCA options see light volume. Use a firm limit order.
Additional disclosure: I am long NFLX June $40 put options.