

Apple Shares Hit $600 Ahead of iPad Release  - bdking
http://online.wsj.com/article/SB10001424052702304692804577283491578994320.html?mod=googlenews_wsj

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jws
A thought seed… At their current pace, from 400 to 600, they will be worth
more than the entire S&P 500 by summer of 2013.

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bdr
If you're still very bullish on AAPL, you could consider buying call options
instead of stock. I didn't know about (non-startup) options until last year.
They may be the highest-EV trade for a given belief about the stock's future,
though the risk level is always higher. Even if you aren't interested in
trading options, I found learning about how they work to be intellectually
interesting.

~~~
nirvana
Consider options spreads. A spread is where you buy a call at one price, and
sell a call at another price.

The thing about options is that they are a timed contract. Come expiration
date, the value of the option depends %100 on the stock price. Before the
expiration date, the value of the option is the intrinsic value (how much it
is in the money) plus a time premium.

Over time, this premium erodes. When stocks are very volatile, the premiums is
rather high, and thus the return on the option is impacted by this premium.

With a spread, since you're buying and selling both, you lower your total
cost, while still capturing the profits in the range between the two strike
prices. This means you're also selling premium at the same time you're buying
it, reducing the impact of volatility on your costs and returns.

For instance (this is not an endorsement of this trade, just an example) you
could buy the JAN 2014 $450 CALL and sell the JAN 2014 $550 CALL.

Let's compare that to just buying the $450 call.

The 1/2014 $450 CALL is $186. (Current price is $585, so this $186 is about
$130 in intrinsic value and about $50 in premium.) If you buy that you've got
$18,600 at risk. (A call contract covers 100 shares.) This is a lot cheaper
than buying 100 shares of Apple which would cost you $58,500.

However if you enter into the spread, you buy the $450 call for $18,600 and
sell the $550 call for $126 X 100 = $12,600 costing you a total investment of
$6,000. When you make that sale, you're selling about $36 in intrinsic value
and collecting $90 in premium.)

Lets consider three scenarios for Options expiration in January of 2014: Apple
at $400, $500, $600 & $700.

Apple at $400: Long the stock: You've invested $58,500 for 100 shares of stock
that are now worth $40,000. You've lost $18,500. Buy the $450 Call: You've
invested $18,600 in calls which are now worthless[1] because the stock is at
$400. You've lost $18,600. Buy the $450-$550 spread: You've lost $6,000 in a
spread which has expired worthless because the stock is at $400.[2] Result:
The spread wins.

Apple at $500: Long the Stock: $58,500 invested in 100 shares now worth
$50,000. $8,500 loss. Long $450 Call: $18,600 in calls which are now worth $50
x 100 = $5,000. $12,600 loss. $450-$550 Spread: $6,000 in a spread that is now
worth $5,000 = $1,000 loss. Result: The spread wins.

Apple at $600: Long the stock: $58,500 invested, now worth $60,000 = $1,500
profit. Long the $450 call: $18,600 invested, now worth $15,000 = $3,600 loss
$450-$550 spread: $6,000 invested, now worth $10,000 = $4,000 profit Result:
The spread wins

Apple at $700: Long the stock: $58,500 invested, now worth $70,000 = $11,500
profit Long the $450 Call: $18,600 invested, now worth $25,000 = $6,400 profit
$450-$550 spread: $6,000 invested, now worth $10,000 = $4,000 profit Result:
The stock wins.

Now, there are several factors I haven't illustrated here.... the main one
being returns. The spread is much, much cheaper than the others, so when it
profits, by a returns basis, it does much better.

The other factor is, the likelihood of Apple being $550 in 2014 and the
likelihood of it being $700 in 2014 are not the same. Generally, the lower the
price you're "betting" on, the more likely things are to end in the money.

Finally, a lot more people have $6,000 to risk than $18,000 or $58,000.

Hope this is useful. I highly recommend reading McMillins "Options as a
strategic investment" (not sure about the author name, very sure about the
book title.)

[1] Of course if things weren't working out as you expected by the summer of
2013, you could probably have rolled over from January 2014 to January 2015
for a small fee. If one had bought Jan 2009 Calls and the 2008 crisis
happened, and they decided to roll over to 2010, they probably would have
preserved their investment. Options give you options, but you have to pay more
attention to them than the stock. If you bought the stock in 2006 you could
have forgotten about it until today and then been pleasantly surprised.

[2] Spreads can be rolled over as well, like the call option was, by entering
a trade that sells your long position while simultaneously buying a long leg
at a later expiration and buys your short position while simultaneously
selling a short leg at a later expiration. You can enter transactions that
involve four legs (or more) and have them all execute simultaneously (or not
at all if they can't all execute.)

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crusso
So you're really saying that Apple stores are going to become even MORE
crowded? Those places are a mad house.

As long as they're that packed, expect the share price to continue to rise.

~~~
mladenkovacevic
The busy-ness of their retail locations is unbelievable. There are so many
people loitering, hanging out, surfing on the computer (it's the same computer
you have at home!) that it makes me claustrophobic and damn-near gives me
panic attacks whenever I have to go in there.

~~~
r00fus
The Apple Store app is quite awesome and helps to minimize the need to be
around (or even talk to) other people.

You can a) order and pickup b) order and have it delivered or c) browse the
physical store, scan and pay ... all without talking to anyone. No paper
receipt or bag either.

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RickHull
Just remember: buy the rumor, sell the news

~~~
beatle
Buy commodities, sell brands.

-Warren Buffet

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veguss
Buy low sell high and you'll end up buying low and selling lower.

Aim for buy high and sell higher instead.

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joering2
Some say the stock will go up to $1,000. Here are my doubts: there is not much
more left for Apple to tap into. Most folks have iPads, iPods, etc. Android
takes up some market as well. The ride from $200 to $550 was understandable --
I had people approaching me everyday that they haven't heard of Apple and now
they love it. It didn't happen in a while. What else they can come up with? TV
- that would be like "take #3" for them. One of the _mistakes_ is that my 4th
gen iPod still updates to the newest iOSes, 2 years later. Hence I don't have
a reason to buy a new model. Also, 4th gen (other than FM radio) has built in
everything one can dream of. And decompressing my music to 192kbit which I
believe is reasonable for most music listeners, on my 64gb I fit 10,600 songs
(or 530 albums) and still 2gb left. So no idea what would make me buy a new
model...

While I see further growth to maybe $700 with the new iPad/iPhone hype, I fail
to see that much of money, new products and momentum for the stock to get all
the way to $1,000. But rest assured, I was wrong before.

~~~
pchristensen
"Most folks have iPads"

They've sold about ~60M so far worldwide in 2 years. I'm a tech nerd in a rich
part of Chicago and I know more people that want iPads than have them.

Every event, every earnings call includes some version of "We're in the Post
PC world. We only sell 1/4 of smartphones. We only sell 1-2% of phones. We
only sell ~8-10% of computers. Even though we're the biggest company in the
world, we have a ton of room and our growth _rate_ isn't even slowing yet."

Apple is not close to saturating its market, except iPods, which it is
cannibalizing itself with iPhones.

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nirvana
Remember, buy low, sell high. Buying at $365 over thanksgiving weekend would
be buying low. Buying here is pretty risky, since all the indicators are
pegged. (e.g.: high RSI, etc.)

It would be nice to think that the market has woken up and realized that
Apple, growing at %100 a year is worth a 20X PE -- that would be a stock price
of $960 on a forward estimated PE basis...(it's something like 16X right now)
but the multi-year trend is lower PEs on Apple, and I don't think things have
fundamentally changed on that. Everyone thinks "Law of large numbers" will
eventually keep Apple from growing fast.

I prefer to buy when its getting no respect.

Also, I think that the media reporting the stock when its at $600 which is a
pure momentum story (while being quiet about the fact that it was a great buy
at $365 on a purely valuation basis) is a big part of the reason people think
that index funds are the way to go. And they are if you're emotions have you
thinking "I'd better buy now before the train leaves the station!!!!"

If you bought yesterday at $580, well, keeping your shares for 5 years is the
only reason to buy (unless you're a trader) and your best bet is probably to
just not look at the stock price for 5 years. Unless you're the kind of person
who can buy at $580, and watch it go back to $360 over the next 6 months,
hitting, in order $520, $580, $480, $550, $450, $600, $500, $400, $360 in the
process! If it does that, when it hits $360 will you be thinking "Damn, this
is the screaming buy of a life time! Back up the truck!", or will you have
gone all in at $550 & $600 on the way down?

(Sorry for the stock talk, but the the stock price is the news.)

~~~
scott_s
The problem is recognizing what's low and what's high. Back when Apple was
around $365, I still thought that was "high." Hence, I don't play the stock
game.

~~~
Homunculiheaded
Agreed, I was always under the impression that 'buy low, sell high' is stated
somewhat tongue-in-cheek in the same way you could say 'the secret to winning
football games is to score more points than the other team'

~~~
nirvana
I'm sure a lot of people do say it that way.

But there is a very real phenomenon-- when the price is high, people want to
buy, when the price is low, people want to sell.

I had a friend who was a gold dealer and I would talk to him periodically
about his experiences. When gold prices are high, he'd be out of stock because
everyone would turn up in his store wanting to buy gold. (often because the
media was talking about record gold prices and people would say "damn, I
should have bought when it was $300! I'm buying now!")

When the price is low-- gold dropped to $1,500 or so lately-- people sell
because they think its a bad investment. A lot of those people selling at
$1,500 bought at $2,000 and have watched it go down and are now swearing off
of gold. (Without regard to the fundamentals that indicate gold will likely
hit $5,000 in the next 5-6 years.)

Buy high, Sell low is the reason so many people think the stock market is a
gamble. Their emotions got the better of them.

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paparoger
Thanks for the heads-up but I'm a little busy fundraising!

