The price of the 700 call does not necessarily reflect where Apple shares will be. Furthermore, as it is at-the-money, then as the price of the 700 straddle is about $88 , mathematically that implies that the price of Apple shares is expected to be within $612 and $788 (without bias as at-the-money option pricing typically assumes even-odds of a move higher vs. a move lower, otherwise arbitrage can ensue).
Alternatively, it could also imply that as a result of the expected implied volatility in the Apple shares , the $88 premium should equal the summation of all profits derived from maintaining a delta neutral position at the close of each day.
You could also do so... Cost of capital is usually reflected in options price, otherwise arbitrageurs will push prices to ensure so. However, you could certainly save on commissions, unless your broker charges you a higher commission for higher premium options.
Well, bubbles are full of air. Apple is full of about $120 billion in cash holdings, and about $160 billion in annual revenues, and still an acceptable P/E ratio....
I guess it goes with our creation of such words as decade, century, and millennium.... Indeed, mathematically, our counting system is base 10 dependent... If we had eight fingers, maybe our counting system would be base 8 dependent and the number 10 would be written as 12 . Meanwhile the number 800 in a base 10 would be written as 1440 in a base 8 world...
Indeed, future release of new products will provide further support to Apple shares, although as far as the Fed, one has to be more careful due to inflationary expectations...
There is a flaw in your price/sales ratio analysis.
Suppose a company has a market capitalization of $200 billion, and has annual sales of $40 billion and cash holdings of $150 billion, with no debt. According to your argument, the price/sales ratio of 5 would be a phenomenal sell signal. The truth of the matter is that once you subtract the net cash position, its price/sales ratio is merely 1.25
On the other hand, I do believe that Apple's risk/reward scenario is not necessarily in its favor at this time. There are substantial indications that the economy is slowing down, consumers are still suffering, and product competition is heating up.
Hence, although I agree that from a risk/reward perspective one has to be careful about being long Apple, and booking profits may be a good strategy for the time being, I wouldn't quite characterize matters in the way you have; I would say "take the money", but rather than say "run", I would say "wait for another entry point once some of the prevailing risks have subsided, and risk/reward is in your favor again"...
Apple's Q4 Depends On iPhone Release [View article]
A very methodical, logical and informative article. I am not comfortable with the outright dismissal of the downside risks, nor am I comfortable with the suggested strategy.
A- In case one is bullish on Apple, I do not believe it would be worth it to sell the $720 calls, as the reduction in cost by $17 is only about 10% of the overall cost, and would not be worth caping the upside of a bullish outlook on Apple
B- In case one believes there are indeed downside risks, as I do, then, from a risk adjusted basis perspective, it is not worth it to risk $150 in order to possibly generate a maximum of $220 in profits.
Last time the author wrote a similar article, I did not agree with him, as I expected Apple to possibly approach 700 by September, as illustrated in many of my Apple articles.
This time around, there are indeed some troubling signs being ignored, and regardless of whether the move is parabolic or not, there is some downside risk to Apple.
Consumers do seem to be stretched, and most technology earnings and outlooks have been poor. Apple's own earnings during last quarter also missed. Everyone seems to believe that it is a temporary phenomenon due to new products expected to be rolled out by Apple. Regardless, Apple's market share in Asia has actually halved, and there is indeed some viable alternative products out there such as Samsung.
Most troubling could be the market itself. With little short interest in Apple, if the overall market stalls, while accompanied by European jitters, Asian slowdown, and a possible disappointment in overall device demand due to overstretched consumers (who now have alternative choices at a lower price), there could be a noticeable correction in the price of Apple shares.... The risks of the broader market stalling are huge; we have only seen an appreciation recently in anticipation of fed easing. Meanwhile, the fed will only ease if there is a sustained slowdown in the economy. This does not bode well for the markets. The bottom line is that the consumer has indeed slowed down, and easing or no easing, the fed's action is unlikely to trickle to the consumer anytime soon...
In short, the market has been rising on air, with no fundementals. Apple has caught some of that air, and has caught additional air due to upcoming product release, while ignoring both current economic fundementals, Apple's last earnings, and actual slowdown in consumer demand, in addition to additional competition... Indeed, some of that air could soon be let out...
10% appreciation for a company with a market cap of $1 billion will see its market cap increase by $100 Million.
10% appreciation for a company with a market cap of $600 billion will see its market cap increase by $60 billion
If a company's market cap is to increase by $60 billion, and assuming a constant P/E ratio of 14, then it would need to generate an increase in earnings of about $4.3 billion.
When such earnings increase becomes very large, it becomes very economically dependent. In other words, it is possible for a smaller company to increase its earnings despite a pullback in the market and economy in case it has secured an insulated niche space; however, for an extremely large company, the word "niche" becomes questionable because its products have become almost standard.
If the broader market pulls-back by 10% to 20%, the health of the entire economy, consumer confidence and consumer spending becomes questionable, and for very large companies, it is no longer a debate of expected growth, but a debate of expected contraction....
Successful investing is not only about mathematics... It is about mathematics, modeling, risk management, psychology, behavior, finance, economics, discipline and more...
The case will be decided by the jury. It is my opinion that the jury will ultimately be influenced by 2 main factors: A- did samsung deliberately imitate apple so that to confuse buyers into thinking they are buying an apple product? it is highly unlikely the jury will reach such conclusion. B- what is the likelihood that in case Apple did not come with its rectangular design, that someone else would have come up with it without seeing Apple's design? it is very easy for anyone to easily produce a product in the shape of a rectangle....
Ferrari designs are quite unique and are not simple rectangles....
With regard to other aspects of the lawsuit, such as rubberbanding, Apple could stand a better chance...
However, it is important to note that Apple short interest ratio as of July 13 was only about 1.35%. It is also very likely that the latest rally has caused such short interest ratio to drop further.
In an environment where short interest ratio on a certain stock is very low, as is the case with Apple, then I believe that a market wide sell-off, or any unexpected news, will actually cause such stock to drop violently and with severe volatility. Hence, it is not a foregone conclusion that Apple will outperform on the downside in case of a market wide sell-off, as it is for such reason that I believe there is a risk to see $450 to $500.
Unfortunately, from a cyclical perspective, the wider market is prone to substantial downside risk during the next 12 weeks. Although Apple has done very well so far, and I have often written bullish articles about Apple earlier in the year, Apple has actually substantial downside risk during the next several weeks;
A- In case of a market wide sell-off, Apple will not be able to escape such sell-off. Currently the market is optimistic about Fed related macro factors. .As soon as Fed euphoria evaporates, cyclically bearish trends could take over again
B- Revenue growth on the top line has been rather weak for the market as a whole. It is unlikely the market can set aside such indicator, in an environment where costs are no longer showing much improvement, and possibly increasing....
C- Future earning expectations on the bottom line are being revised lower. Again, it is likely such factor will ultimately come into focus
D- Europe's problems are on hold, but are likely to come alive again at any moment
E- In an election year, the Fed is more likely to stand aside in order not to be accused of trying to influence elections through economic stimulus
F- Although Apple has historically rallied due to Court cases relating to patents, it is unlikely the current patent wars will be in its favor. Qualitative debates and lawsuits about whether or not a "rectangular" shape is patentable is a lost cause. If Apple wins such debate, it will be itself subject to other lawsuits by others who introduced rectangular shapes even before Apple....
G- Stock split has been anticipated for many quarters so far, and it is fully priced in.
H- Apple's miss in earnings for the latest quarter could be a function of increased Android/Galaxy competition. Such miss at current price has been fully ignored, and will most likely come back to haunt bulls...
I- Law of large numbers will work against Apple where the overall market is subject to substantial downside risk
Once again, although I admire Apple, this is a time to be cautious, as potential downside risk can actually drive it lower to near $450 to $500, primarily due to market driven cyclical factors and macro events...
That's true user 399566. This also applies to most other tech companies, as most also manufacture there. On the positive side, maybe such interdependencies also give politicians an incentive to keep cool heads....
Apple: $700 Done. $800 When? [View article]
Alternatively, it could also imply that as a result of the expected implied volatility in the Apple shares , the $88 premium should equal the summation of all profits derived from maintaining a delta neutral position at the close of each day.
Apple: $700 Done. $800 When? [View article]
Apple: $700 Done. $800 When? [View article]
Apple: $700 Done. $800 When? [View article]
Apple: $700 Done. $800 When? [View article]
Apple: $700 Done. $800 When? [View article]
Apple: Take The Money And Run [View article]
Suppose a company has a market capitalization of $200 billion, and has annual sales of $40 billion and cash holdings of $150 billion, with no debt. According to your argument, the price/sales ratio of 5 would be a phenomenal sell signal. The truth of the matter is that once you subtract the net cash position, its price/sales ratio is merely 1.25
On the other hand, I do believe that Apple's risk/reward scenario is not necessarily in its favor at this time. There are substantial indications that the economy is slowing down, consumers are still suffering, and product competition is heating up.
Hence, although I agree that from a risk/reward perspective one has to be careful about being long Apple, and booking profits may be a good strategy for the time being, I wouldn't quite characterize matters in the way you have; I would say "take the money", but rather than say "run", I would say "wait for another entry point once some of the prevailing risks have subsided, and risk/reward is in your favor again"...
Apple's Q4 Depends On iPhone Release [View article]
A- In case one is bullish on Apple, I do not believe it would be worth it to sell the $720 calls, as the reduction in cost by $17 is only about 10% of the overall cost, and would not be worth caping the upside of a bullish outlook on Apple
B- In case one believes there are indeed downside risks, as I do, then, from a risk adjusted basis perspective, it is not worth it to risk $150 in order to possibly generate a maximum of $220 in profits.
Apple: Too Far Too Fast, Again [View article]
This time around, there are indeed some troubling signs being ignored, and regardless of whether the move is parabolic or not, there is some downside risk to Apple.
Consumers do seem to be stretched, and most technology earnings and outlooks have been poor. Apple's own earnings during last quarter also missed. Everyone seems to believe that it is a temporary phenomenon due to new products expected to be rolled out by Apple. Regardless, Apple's market share in Asia has actually halved, and there is indeed some viable alternative products out there such as Samsung.
Most troubling could be the market itself. With little short interest in Apple, if the overall market stalls, while accompanied by European jitters, Asian slowdown, and a possible disappointment in overall device demand due to overstretched consumers (who now have alternative choices at a lower price), there could be a noticeable correction in the price of Apple shares.... The risks of the broader market stalling are huge; we have only seen an appreciation recently in anticipation of fed easing. Meanwhile, the fed will only ease if there is a sustained slowdown in the economy. This does not bode well for the markets. The bottom line is that the consumer has indeed slowed down, and easing or no easing, the fed's action is unlikely to trickle to the consumer anytime soon...
In short, the market has been rising on air, with no fundementals. Apple has caught some of that air, and has caught additional air due to upcoming product release, while ignoring both current economic fundementals, Apple's last earnings, and actual slowdown in consumer demand, in addition to additional competition... Indeed, some of that air could soon be let out...
Apple: A Wide Moat [View article]
10% appreciation for a company with a market cap of $1 billion will see its market cap increase by $100 Million.
10% appreciation for a company with a market cap of $600 billion will see its market cap increase by $60 billion
If a company's market cap is to increase by $60 billion, and assuming a constant P/E ratio of 14, then it would need to generate an increase in earnings of about $4.3 billion.
When such earnings increase becomes very large, it becomes very economically dependent. In other words, it is possible for a smaller company to increase its earnings despite a pullback in the market and economy in case it has secured an insulated niche space; however, for an extremely large company, the word "niche" becomes questionable because its products have become almost standard.
If the broader market pulls-back by 10% to 20%, the health of the entire economy, consumer confidence and consumer spending becomes questionable, and for very large companies, it is no longer a debate of expected growth, but a debate of expected contraction....
Successful investing is not only about mathematics... It is about mathematics, modeling, risk management, psychology, behavior, finance, economics, discipline and more...
Apple: A Wide Moat [View article]
Ferrari designs are quite unique and are not simple rectangles....
With regard to other aspects of the lawsuit, such as rubberbanding, Apple could stand a better chance...
Apple: A Wide Moat [View article]
However, it is important to note that Apple short interest ratio as of July 13 was only about 1.35%. It is also very likely that the latest rally has caused such short interest ratio to drop further.
In an environment where short interest ratio on a certain stock is very low, as is the case with Apple, then I believe that a market wide sell-off, or any unexpected news, will actually cause such stock to drop violently and with severe volatility. Hence, it is not a foregone conclusion that Apple will outperform on the downside in case of a market wide sell-off, as it is for such reason that I believe there is a risk to see $450 to $500.
Well, the next few weeks will be telling.....
Apple: A Wide Moat [View article]
A- In case of a market wide sell-off, Apple will not be able to escape such sell-off. Currently the market is optimistic about Fed related macro factors. .As soon as Fed euphoria evaporates, cyclically bearish trends could take over again
B- Revenue growth on the top line has been rather weak for the market as a whole. It is unlikely the market can set aside such indicator, in an environment where costs are no longer showing much improvement, and possibly increasing....
C- Future earning expectations on the bottom line are being revised lower. Again, it is likely such factor will ultimately come into focus
D- Europe's problems are on hold, but are likely to come alive again at any moment
E- In an election year, the Fed is more likely to stand aside in order not to be accused of trying to influence elections through economic stimulus
F- Although Apple has historically rallied due to Court cases relating to patents, it is unlikely the current patent wars will be in its favor. Qualitative debates and lawsuits about whether or not a "rectangular" shape is patentable is a lost cause. If Apple wins such debate, it will be itself subject to other lawsuits by others who introduced rectangular shapes even before Apple....
G- Stock split has been anticipated for many quarters so far, and it is fully priced in.
H- Apple's miss in earnings for the latest quarter could be a function of increased Android/Galaxy competition. Such miss at current price has been fully ignored, and will most likely come back to haunt bulls...
I- Law of large numbers will work against Apple where the overall market is subject to substantial downside risk
Once again, although I admire Apple, this is a time to be cautious, as potential downside risk can actually drive it lower to near $450 to $500, primarily due to market driven cyclical factors and macro events...
Is There Apple Without China? [View article]
Is There Apple Without China? [View article]