Apple: Be Careful What You Wish For

Apr. 9.12 | About: Apple Inc. (AAPL)

I continue to believe that Apple (AAPL) is the most incredible company on the planet right now. I also think that it has created its own sector of stocks and stands alone as the premium player in just about every tech sector we can think of.

If that isn't enough, Apple has a P/E of about 18 which for all intents and purposes is "low" compared to the other tech stocks and even to the S&P which stands at about 25 right now. Apple has driven the NASDAQ and the S&P to record levels, and has been much of the basis for the tremendous growth in many index funds as well.

This could be the most perfect stock I have ever seen. I have written several times about Apple, beginning back on October 26th, 2011 when everyone was questioning the loss of Steve Jobs and the future of Apple. The shares were selling for about $395/share. I then followed that article up with another one in December when it dropped further. At $382/share I was screaming that it was the buy of a lifetime, which I actually still believe that now (with caveats).

I began taking positions in LEAP calls, about 3 or 4 times. I even wrote about it in a comment lashing article back in February, just 2 months ago. It seemed at the time that no matter what I wrote about concerning Apple, I would have all of the rock throwers blast me to smithereens. I was making just about as much (if not more because of leverage) by trading the LEAPs than actual shareholders at various entry points.

On March 2nd I wrote my first "warning" article on the stock, stating that it might have gone up too far too fast, and that I was adding naked puts to my option trades, thinking I could finally own the shares at the price I wanted to pay, if it pulled back, and I would collect the premiums while waiting.

Needless to say, the only money I actually made was on the premium of the naked puts I sold, as well as the LEAP calls I bought. The shares simply never dropped in price.

Since that time Apple has reached $633/share and once again has risen in a down market and is continuing its remarkable journey.

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Apple Inc. (NASDAQ:<a href='http://seekingalpha.com/symbol/AAPL' title='Apple Inc.'>AAPL</a>)

Be Careful What You Wish For

In my particular case, I decided to buy back my naked put position, sell all of my LEAP calls, and lick my wounds with a wonderful profit and began letting everyone know that it might be time to take some profits.

Well, talk about being ripped apart. The Apple "moonies" were out in force and of course the stock action gave them even more ammunition to come after me. At this point we still have all of the amazing fundamentals intact and an ever increasing share price that continues to defy gravity, no matter what. For any long that has held this far, we have seen new wealth created as never before. My hat is off to all of you.

That being said, I will NOT be selling puts, NOR will I be buying LEAP calls now, until an inevitable pullback occurs. If it does not occur, that's fine also, since I will applaud from the sidelines.

The reason I will not be selling naked puts is that I do not have any idea where I should place the strike price. I am confused and that is NEVER good when trading. I believe that a pullback could be stronger than ever, and the last time i said this, the share price DROPPED by over $20 bucks a share in just a few days. At this point, I can envision a 10-15% drop very quickly if Apple earnings are not premium, or if many buyers decide finally to take profits.

I do not want to catch a falling knife and be immediately underwater even though I intend on owning Apple shares at some point. Just not yet.

My Opinion

I would suggest that traders be very careful about selling naked puts or buying calls. I would also not bet against Apple by shorting it or by buying put options. It just is too risky in my view.

For investors, if you own the shares and want to hold on until the fundamentals change, then that is your call. Taking some chips off the table (which does NOT mean dumping the stock) is not a sin. Even if I have been depicted as the Apple devil.

Be careful out there, there could very well be an iceberg waiting for the Titanic.

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