What Apple Really Thinks About The iPad Tablet Competition

| About: Apple Inc. (AAPL)
This article is now exclusive for PRO subscribers.

So the big event is finally here and gone. Wednesday Apple (NASDAQ:AAPL) announced a release not of the iPad 3 but "The New iPad". Some people were impressed by the high resolution screen, much improved camera, and new powerful quad-core A5X processor. Other additions like the 4G LTE capability is great for those who use the 4G services but probably overkill for most as we don't surf the web typically at 4G speeds.

All of this is nice but honestly the most impressive thing from AAPL on Wednesday was the fact they did NOT reduce the price per unit. Many analysts have showed concerns regarding the fact the Amazon (NASDAQ:AMZN) Kindle Fire and Samsung Galaxy (OTC:SSNLF) are serious threats in the tablet world. Call it arrogance, confidence, or ignorance it doesn't matter AAPL is doing nothing short of flipping the bird to the competition. I personally think this is genius as it will more than likely continue to foster the long term (premium price) eco-system known to AAPL enthusiasts.

The truth is AAPL probably could have cut the price and sold more units but to help keep margins high and maintain the AAPL swagger across the board. iPad, iPod, iPhone, MacBooks, pick your product have crazy high margins and even in the face of competition AAPL refuses to lower prices. The AMZN Kindle Fire carries a price point of just 200.00 and sold an estimated just north of 4 million Kindle Devices in 1 month all at a loss. Whereas, AAPL sold ~15 million iPads at 2.5x the price continuing to drive crazy record profits helping AAPL to reach more than 100 Billion in cash reserves.

Although AAPL reduced the price of last year's iPad 2's which will probably drive even more unit sales this is still 2x the price of the Kindle Fire. As I stated in my previous article how to profit from a pullback on AAPL, (here) I was a long term hater of the AAPL products. However, after recent moves and changes I now use everything AAPL and have no plans to change anytime soon.

Anyone who follows me knows any thesis I have is driven by options activity. AAPL of late has seen a massive inflow of call buyers as people continued to speculate moving into this event. The options IV collapsed more than 16% yesterday during the even which left those long straddles crying as the ATM weekly straddle went from 17.00 to just over 9.00 in just over 1 hour. The long term options continue to be very bullish in this name but April and May options recently have seen more put inflows of late. I am still holding my April 500-475-450 put butterfly for 2.50 and will continue to hold as I do believe a pullback is healthy for a continued move upward.

In conclusion, yesterday's press conference was about what I would have expected. Some people were disappointed with the lack of SIRI integration into The New iPad. This is secondary in my mind as the pricing power AAPL continues to have is the real story. I still think AAPL needs to fill the earnings gap which occurred after the last earnings release but it appears there is nothing in the near term which can stop this juggernaut of a stock.

I am long SDS, APC, TBT, FAZ.
I am short: PBI, DB, EEM, AAPL, LYV, BSFT, GLD.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. I do not recommend that anyone act upon any investment information without first consulting an investment professional as to the suitability of such investments for his or her specific situation.