Sunday, January 9, 2011

Options Monday: Back in the AAPL again

Well, last week’s Option Monday is going to be a tough one to beat.  GM was a ten bagger and the AAPL 310’s were up over 60%. I took profit in GM on Thursday as $39 is my short term price target for the stock. I sold half of the 10 AAPL JAN 22-11 $310.00 CALLS and rolled the proceeds into 5 AAPL JAN 22-11 $330.00 CALLS at $11.05 per. I wanted to lock in some gains from the AAPL trade while maintaining my bullish position. This week will be more of the same as I play AAPL’s upside into earnings.

When an investment looks too good to be true, it usually is. After all, there’s always cheddar in a mouse trap. For this reason it is prudent to look at every investment with a healthy dose of skepticism. In trading, for someone to make money, someone must lose money. There is no free lunch.

But most of the time investors overcomplicate things. They don’t see the forest for the trees.

I believe this is the reason AAPL is severely undervalued by the market. People look at the share price ($336) and immediately get worried. How can a company that makes MP3 players, Phones and over priced computers be the second largest company in America? What happens when the trend inevitably fades? Quite simply, who cares?

I don’t care if AAPL is making touchpad Shake Weights 10 years from now. All I know is it has momentum and the fundamentals that make it as excellent short term option play.

Forward Cash Adjusted Price to Earnings:  13.43

 Forward PEG Ratio:  .77

Price Target Summary
Mean Target:
Median Target:
High Target:
Low Target:

1 Year
3 Year
5 Year

These numbers are simply ridiculous for a company of AAPL’s size. Applying an average market multiple to one of the greatest growth stocks in the world is downright cowardly.  Cowards don’t make money, they use bank accounts.

Even the chart is telling you to buy:

The current run up into earnings has happened the last three quarters. The Verizon catalyst is simply fuel to the fire. The 20YM plans on AGGRESIVELY attacking upside AAPL Jan and Feb calls starting this week. I will sell at least 75% prior to earnings on the 18th. This might be the quarter that AAPL springs after earnings, but no need to be piggish.  This will be the biggest quarter in AAPL’s history, but the market likes to take profits.

It’s not often that the market offers such a great company at such a deep discount. Get in while you still can.

Best of luck,

Craig Mack T20YM


  1. Another fantastic day... I'm going golfing.

  2. Craig,

    Are you so bullish that you buy January Calls? Why? I thought that going long, it was better to buy deep in the money (ITM) calls with at least 60 days to expiration, with 90 days being better to protect the possible down side? Right now, you have absolutely no Theta to play with and could lose 1/2 of your principal. Whereas a 90 day ITM call would still give you time to recoup your principal and go on to make profits or to double down.

    I am just not understanding the risk/reward here, unless you are totally assured that this is a winning play.


  3. Rick,

    Normally I play deep in the money calls with 2-3 months till expiration. The last two weeks I saw opportunities in the market and took advantage of them.

    With AAPL, the volatility will stay priced into the options until earnings. This give the January Options a little less decay than normal. I plan on selling the majority of the options prior to earnings to avoid the volatility suck on the 18th.

    I plan on buying March upside calls on a pullback (maybe thurs).

    Thanks for reading.


  4. Hi Craig,

    I just chanced upon your site and find it interesting. Being into AAPL (stocks) myself I will visit your site regularly if you keep blogging about your Apple options strategies.

    You mentioned you plan on selling around 75% of your Jan & Feb calls before the 18th. You also mentioned about buying March upside calls on a pullback.

    What would really help is if you can list some brief details of the calls you plan to sell and the ones that you'd want to buy. For example,

    "I'll pick up some March 2011 350 calls if I can get them for under $10"

    That'll make researching and analyzing a little easier for investors like me who are not sophisticated Options traders. Thanks.

    - Raj