Fun With AAPL

AAPL Høurly 230413Apple’s products have interested me since the first Mac was introduced in 1984, and although I went through a number of years as a Windows user, I ultimately returned to the fold, and now run Windows on an iMac when necessary. My interest in the stock has been ongoing; it’s my proud boast that I owned, for me, a fair amount of the stock at roughly 5. It’s my sad confession that I sold it around 30, leaving a mere 674 per share on the table. To be fair, I’ve been long (and short) on numerous occasions since then.

The company announced earnings a couple of hours ago. They were somewhat better than analysts had feared, but more importantly, the company increased the dividend by 15% (to 3.05 quarterly), and announced an enormous stock repurchase program, allocating an additional $50 billion to the existing $10 billion program. Guidance for next quarter seems to be considered slightly disappointing. As the attached hourly chart (which includes trades conducted outside regular market hours) indicates, AAPL bulls would have been first delighted, and then horrified, bears more or less vice versa.

I have no earthly idea as to how things will shake out over the next few days. I do know that $50 billion will buy quite a bit of AAPL (around 123.5 million shares at current prices), and I think that the company is smart to undertake the process now, with the stock price reflecting a very modest P/E, rather than at or near the peak, as is done by a surprising number of companies. This will tend to put a floor under the stock, as whenever it is under pressure and a persistent bid comes in, the suspicion (accurate or not) will always be that it is the company, with its very deep pockets, doing the buying. In addition, at 400, the dividend yield is now slightly over 3%, making it something resembling an income vehicle for value investors.

AAPL Daily 230413The stock, it seems to me, will still get its major upside kicks from exciting new products, if and when they appear from Jonny Ive’s workshop. If the stock dips down to 390 or so (it’s back to around 405 as I type), I will  look to start putting on bull put spreads (probably short 380/long 375), looking to let time decay work for me as long as the previous 385.10 low holds. How did I do on the earnings? On Friday, with the stock around 391, I picked up some May 390/415 call spreads. The upper strike was intended to provide insurance in case of a collapse in implied volatility post-earnings (which would make the long 390 call less valuable); it also represented the amount of premium I was prepared to lose if my bullish directional bias didn’t work. I had intended to hold them through earnings, but with the stock already at 405 today,  I decided to take profits and reassess tomorrow. It was no longer worth risking a loss of premium when most of the profit potential in the spread had already been reached prior to what was meant to be the catalytic event of earnings. Since the options were for May expiry, time decay (Theta) will also become an issue for those net long of options, as in this case.

We’ll see how it looks tomorrow; have a great evening!

About the Author kevin

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