Apple's iPad Mini Announcement And How To Play It

Oct. 4.12 | About: Apple Inc. (AAPL)

Multiple sourced rumors are pointing to a possible Wednesday, Oct. 17, announcement of the iPad Mini, with a possible ship date of Nov. 2, 2012 (16 days later).

With one of the sources being The Wall Street Journal, there is reasonable enough probability for this occurring, to evaluate how to play this most likely set of events with Apple (AAPL) shares or its options. We are now 13 days before the announcement.

Similar "rumors" in the past have allowed nice returns for traders in advance of key anticipated product announcements by Apple and their initial shipments. An example is the recent iPhone 5 announcement on Wednesday, Sept.12th with shipments commencing on Friday, Sept. 21st.

On August 30th, 13 days before the announcement, AAPL closed at $663.87.

On Sept. 13th, one day after the announcement, it closed at $682.98 - a 2.9% move. By ship date (9/21) - it closed at $700.09 ( a total move of 5.5% over 3 weeks). Similar patterns existed in previous iPhone announcements see, for example, this BitRebels analysis and this Seeking Alpha one.

The patterns may be less pronounced for iPad, but are as follows:




13d b4





























Click to enlarge

The smaller move for iPad 2 must have reflected disappointment with the scope of the product capabilities.

The Mini-iPad, while not a revolutionary new product category, represents an Apple foray into the well established, lower cost, smaller size tablet space, which represents some 50M unit shipments per year today, where Apple is totally absent. An Apple entry here, with with the rich Apple user experience and app eco-system, will most likely take a substantial bite out of all players' shipment quantities in this niche - Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG), Samsung (OTC:SSNLF), Barnes & Noble (NYSE:BKS) being the main ones - and may capture as much as 30%-40% of the segment.

So I anticipate a similar response in the stock price to its announcement as we saw for the initial iPad and iPad 3rd gen - i.e. - an approximate 10% run from current levels to ship date (11/2). This would put AAPL at approximately $735/share by 11/2.

Given macro economic factors, I would handicap that to the range of $710.

Playing the prospect of AAPL at $710 by Nov. 2nd, 2012

Buy a Nov. $695/$705 Bull Call Spread - i.e. -

Buy Nov. $695 calls for approximately $18.90

Sell Nov. $705 calls for approximately $15.20

Total debit - $3.70 per spread.

Reasonable probability for expiration at above $705 should provide return of $10 /spread vs. $3.70 invested - or a cool 170% return in 6 weeks. Alternatively, you could decide to take some or all the money off the table on Nov. 2nd.

Disclosure: I own short term call options on AAPL, and may initiate a long position in AAPL over 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.