I wrote an article earlier this month stating how I felt that Apple (NASDAQ:AAPL) was in a decline and put my money where my mouth is by purchasing the November expiration $105 put. I subsidized the purchase of that put by writing a couple of puts below that. I felt that the stock could get to $102 because there was an air pocket at $102 back in mid-September which I felt the stock could retest. The stock has been acting stubbornly and was flirting with the $105 before bouncing to the current level of $111. So now that my November bearish bet is done I have acted in kind and gotten bullish.
As the Nasdaq has been hitting record highs after the election Apple has followed suit (moving higher, not necessarily hitting record highs). Apple is a mega-cap tech stock which essentially moves the Nasdaq and S&P 500 with a little bit of help from Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and a couple of other friends. It is because Apple is a big portion of the S&P 500 and the Nasdaq and considering we are in a post-election Santa Claus rally that I want to be long Apple now.
So what I ended up doing was purchasing quite a few shares in my IRA account earlier this week and actually wrote the January $110 put in my regular trading account. I purchased the shares in my IRA outright because that brokerage company does not allow naked put selling even if you have the cash to cover it. In my regular trading account, I wrote the put because I did not want to be double committed to the stock yet.
I wrote the put out in January because there does not appear to be any events happening that are idiosyncratic to the company between now and then. The one event taking place non-company related is the December Federal Open Market Committee meeting where the Fed may or may not raise interest rates. I do not believe the meeting will have an impact on Apple so that is why I think the stock can levitate with the rest of the market into the end of the year.
Or at worst there may just be a lot of sideways movement considering all the holiday shortened weeks we have the next month and a half. The risk with writing the put at $110 is that it is extremely near the money right now as the stock is trading at $111. I collected a pretty good premium but there isn't much buffer right now.
The one risk that can I continue to harp on is the fact that Apple is still a one-trick pony. So barring any exogenous event outside of the FOMC meeting, coupled with Samsung's (OTC:SSNLF) failure of a phone there isn't anything that can harm the stock between now and January. The one thing that Apple can do better is step up its game of capturing more iPhone buyers while Samsung is down for the count but it appears that Google is stepping in to pick up the fallen Samsung customers. The consumer has seen increased ad spending by Google to advertise their new phone product, but yet there really isn't any increased advertising on the part of Apple.
The MacBook, the watch, none of Apple's other products are material to the revenue stream of the company. Apple's growth is done. Since it started implementing the dividend and buybacks, the stock has become a mature behemoth the likes of Procter & Gamble (NYSE:PG) or Johnson & Johnson (NYSE:JNJ); hence its induction into the Dow Jones Industrial Index in 2015. You want to know what Apple has done since getting added to the Dow? It is down 10% while the Dow is up 6.9%! So now that it's in the Dow, it is just going to move sideways at best or maybe even grow with inflation, or grow with the rest of the market at best.
An additional reason for wanting to go long the stock aside from it moving with the rest of the market is that the stock is inexpensive. But stocks that are cheap are cheap for a reason, and in this case, there is no long-term growth. The stock currently trades at 11x next year's earnings estimates and earnings estimates are expected to increase by 11.5% for 2017, but long-term earnings growth is anticipated to be 8.7% which indicates it is no longer a growth stock.
The balance sheet and the dividend are appealing at this level and those are additional reasons why the stock shouldn't go lower from here so I feel comfortable with writing the put and going long the stock in the two different accounts that I did. I challenge you to tell me if you can live without your phone these days and I'm guessing you can't.
The iPhone is the only real phone out there these days and the consumer will probably be picking it up for the holidays. Heck, I just started a new job the other week and an iPhone was sitting on my desk before I even physically walked into my office. Thank you very much for reading and I look forward to your comments.
Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am/we are long AAPL.
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.