Last week I noted that Apple (AAPL) had risen in a somewhat parabolic fashion since 11/25/2011 through 3/2/2012. It had a roughly 50% move virtually straight up.
The RSI was over 90 (approaching 100 actually) and I outlined a risk trade that ignored the fundamentals of Apple and focused strictly on the overbought conditions and the herd mentality that existed ( and still does) towards the stock.(Review the article here)
Prior to that, I wrote an article in which I sold my LEAP calls and took a handsome profit. (Review the article here)
Neither of these articles were bearish signals that Apple would falter or not reach over $700/share in my opinion, before the end of the year. I still maintain that despite the recent frenzy to own shares of Apple and the dramatic run up in its PPS, the fundamentals are impossible to ignore.
Today Apple announces the release of its latest product offering; an upgraded iPad, whether it is #3 or HD, or something else does not matter. I believe the lines around the stores that carry the product will be just as frenzied as before. Especially if they also have a small screen sized version of the iPad 2 at a lower price point, which would impact the sales of the Android tablets that have been on the market.
Either way, the marketing and product launch approach by Apple has been brilliant and has chartered new waters in a sector that Apple seems to have carved for itself.
There does not seem to be any reason to compare the PE to any other company right now because quite frankly, there is no other company like Apple. The PE has to be compared to itself I believe and it has risen along with the PPS.
That being said, over the past 2 days we have seen a pullback in Apple's share price of approximately 4% and at $530/share, and the release of the new products I will be making another trade this morning to take advantage of the current situation.
Action Being Taken
1) I am selling the April 495 put options at $900 per contract
2) I am buying the January 700 LEAP calls at $4200 per contract.
This brings my cost of the leaps down to $3300 per contract for now, and if the stock happens to drop post announcement and my order to own shares fills, I will be glad to own shares at that price now.
Conversely, I also want to take advantage of my bullish outlook for Apple in the form of LEAP calls in which I can use leverage to "own" more shares by paying the premium for the calls rather than the current share price.
By making this trade, I am acknowledging once again, the amazing growth of Apple of which I want to be part of. I believe that although we might see another pullback after the product announcement, Apple will once again dominate with fundamentals.
These trades are less risky than the purchase of puts which I made Monday, but are still within the fringes of risk trades. Therefore those of you with risk averse tolerance should avoid making these trades.
I also am deploying the profits I have made from 2 highly successful trades and am taking another step towards owning Apple shares for the long term.
Appropriate comments are welcomed from all.
Disclaimer: Please remember to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any securities or stocks, and is the opinion of the author.
Additional disclosure: I am selling naked puts and buying LEAP calls this morning