Option Mondays: Playing Momentum Names While Limiting Risk

At my core, I am a long-term value investor. I work an 8-6 job, have a family, go to school at night and honestly don’t have time to be an active trader. I enjoy doing fundamental analysis, buying undervalued dividend paying stocks and investing for the future. Obviously, this limits the universe of stocks I invest in to a handful of companies. There is nothing exciting about investing in McDonald's (MCD), Johnson & Johnson (JNJ), Coca-Cola (KO) or Procter & Gamble (PG). There is no need to check your brokerage account every day -- or even every week, for that matter. One can sleep at night confident that one's money is safe. I’ll admit it’s boring, but it’s a dependable march towards financial freedom.

As a (relatively) young investor, I have the luxury of taking risk. While the majority of my portfolio is dedicated to broad-range ETFs and long-term stable dividend growth stocks, there is always a little slice of capital allocated at chasing the momentum companies. You know the ones I’m talking about: Netflix (NFLX), NetApp (NTAP), Apple (AAPL), Chipotle (CMG), Baidu.com (BIDU), Amazon (AMZN) and the like. These are the "castle in the sky" companies, the ones that jump 10 to 20 points depending on the mood of the market, where investors buy high and hope to sell higher.

Read the rest of the article at Seeking Alpha

Option Monday: Buy when there is blood in the streets

I am up huge on AAPL today. Like I stated in last weeks article, I sold 75% of my Options on Friday for well over 100% gain. This morning on the gap down I Dollar Cost Averaged back into my Jan 335 and halved my cost basis. Additionally, I purchased 10 Feb 330 at around 227.

AAPL was off 6% on the day, and I am up $6000.

Buy when theres blood in the streets!

I am still only holding  5 of the Feb 330 Call into earnings.

Best of luck,

C

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:	374.61
Median Target:	375
High Target:	500
Low Target:	165

Growth Rates	1 Year	3 Year	5 Year
Revenue Growth Rate Annualized (%)	52.02	38.45	36.17
EPS Growth Rate Annualized (%)	66.91	56.81	57.7

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 18^th. 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

Option Mondays: GM and AAPL

I have gotten away from the T20YM Option Monday report over the last few months. The main reason was that most of my trading capital was wiped out with the GOOG debacle. I have tightened my belt and scratched back to a place where I feel comfortable dipping my toes in the Options Market again.

Last month I was focused entirely on the Financial Services/Banking recovery. I was lucky enough to buy 11.50 LEAP on BAC and took a handsome profit on its run up. I was also in early on HBAN’s modest recovery. JPM and WFC both worked nicely and I turned these trades into 60%-70% gains. I am out of the banking sector for the time being, turning my attention some more current market movers.

General Motors: 10 GM Jan 22 '11 $38 Call at .15c per and 10 GM Feb 19 '11 $35 Call at $1.75 per.

It’s not often when a iconic American company is initiated at a buy by 7 different firms on the same day. Not only that the median price target was set at $45. This is the type catalysts that will drive a stock price up for a few weeks- especially at year end for MM window dressing.  I expect the stock to run up again next week on heavy volume. I will hold the Jan 38’s until week end and the Feb 35’s into Feb.

Apple Corporation: 10 AAPL JAN 22-11 $310.00 CALL at $17.30 per.

Unless there is a complete market breakdown, I suspect AAPL will have a substantial run up into next earnings report on Jan 18^th. Considering we have FIVE straight days of POMO starting on Monday, I don’t think we will be breaking down. This will be the biggest quarter in AAPl’s history. Additionally, we have the Verizon catalyst that should come early/mid next week. I believe most of this is priced in, but it should have another spark for the stock. Other than the share price, AAPL is unbelievably cheap. I will add some Jan 330’s if we move higher on Monday and Tuesday. I plan on selling at least half the position before earnings to avoid Premium Suck and profit taking.

I will have my eye on a few small cap precious metal companies as well. Looking to add LEAPS on a few different names. Will post updates as they arrive.

Happy New Year…

Craig Mack

All quite on the T20YM Front.

Sorry for the delay in posting, it’s been a quite couple weeks on the trading side. I have been licking my wounds after the Google debacle. That error took a considerable bite out of my trading capital. I have been making small moves here and there and have had some success. I have not initiated any new long term positions since I last updated the portfolio. I am personally finding it difficult buying at the current levels, but I have been saying this for 100 points on the S&P. Sooner or later I will have to stop being so stubborn. I guess there are no called strikes in investing.

Since I have nothing profound to write, I guess I’ll list some take away s from the last two weeks:

•        I hate the VXX. Anytime I have used the VXX to hedge an investment it steals my money. I feel like I am donating to the stupid tax when I open a position. It does a terrible job at mirroring the VIX in general. If I am worried about volatility, I am either going to outright short the market or do nothing. I will not buy this again, I’m better off spending the money on scotch.

•           QE2 is here and I am not fighting it. I am not saying people should push all in on equities but you should increase your exposure. The U.S. dollar is losing value faster than Cavaliers after Lebron. The easy trade is long commodities (gold, oil, ag), short long term bonds (TLT puts, TBT), and play the high growth names (CMG, AAPL, NTAP, etc). I want to be clear, I don’t agree with quantitative easing, and I don’t think this ends well.  

•           Elections are over and the red tide cometh. I’m pretty sure we will see Bush era tax cuts extended for all. Additionally, I think we will see the capital gains and div tax extended. This is a positive for the market. Let’s hope the Republicans keep their promise and try to reign in spending. We need to get our fiscal house in order.

•           I have a few small option plays on NTAP Nov 55 Calls. Looking for direction Monday or Tuesday. I also have a spec play on Nov BP 44 calls. Word came in late Friday of a potential bid for the company by XOM. We will see how they play out.

•           I am going to increase my commodity exposure with either REMX or GLTR.

• Can you believe the Giants won the World Series? are we in bizzaro world? Some crazy Giants fan made a boat load on that bet. 

It’s been a crazy week at work and school. Look for me to be more active after midterms.

Good luck to all,

C

Options on AAPL: Sometimes it’s better to be lucky than good.

I am going to be completely honest. For the last week I have watched every TICK on the AAPL charts. My eyes were on the verge of bleeding. I didn’t lose any sleep (the whiskey saw to that) but I couldn’t clear my mind. I couldn't get the weight off my shoulders. It was consuming.

I made a mistake, a big one.

I bought into AAPL at exactly the wrong time. I went long 10 AAPL Oct 290 calls at peak volatility in an up market. I figured the run to $300 was in progress and there was no derailing the train. No need to rehash the past (see previous posts) but AAPl plummeted in the next week. I compounded my error by trying to catch a falling knife. I went from being long 10 AAPL Oct 290 calls at $9.80 per, to long 35 AAPL Oct 290 calls at $4.90 per, and down $9,000.00. I was dollar cost averaging myself into the poor house. Day after day, the technicals were telling me to get out, but I was waiting for that one bounce to exit. It was two weeks until expiration and every indicator was telling me to sell- but I held on.

I pushed in again- doubled my position and DCA down to 70 AAPL Oct 290 calls $3.85. Monday was terrible and I was down $15,000.00 or so. As a normally disciplined value investor, you can see how troubling this was for me. I had dug myself in a gigantic hole and was starting to look at things in my house that I could sell to remain whole. I put on a happy face and kept plugging away at my day job, school and family. The whole time this trade/loss was eating at me.

I was confident the stock was due for a bounce, I just didn’t know how much more punishment I could take. It was trading at 14x forward cash adjusted EPS. 14! This is one of the greatest growth stocks in the S&P. The only barrier to entry in this stock is its price tag, if it were to split (say 5-1), the price would immediately skyrocket. None of these facts matter. It did not matter that it was getting upgraded daily. It did not matter that its international expansion was proceeding at breakneck speed. All that mattered was that BIG MONEY (hedge funds, MM’s) were exiting the position at the end of quarter for huge gains. The stock was in trouble. I was one day from folding, hey the world needs ditch diggers too.

Then came the Tuesday morning, and a rising sun from the east changed the whole landscape. Japan had lowered its rates and entered into its own round of QE. This was the spark that the market needed. We rallied over 20 points on the S&P handily breaking through the previous 1150 resistance. AAPL was up nearly 10 points. I had reversed my entire loss for a decent sized gain. I had gone from zero to hero in one day. I should be flying high, but I am not. I am merely relieved.