Very nice post Malcolm!

I agree with you that the key to Apple is what are they going to do next. They certainly have plenty of cash to do anything they want to do but what and when will it happen.

Many wonder if a true Apple TV is next, not a hockey puck like we have now but a real TV. I certainly do believe the TV industry is ripe for a "game changer" just as the cell phone industry was when Apple released the iPhone (5 years ago) or the music industry was when Apple released the iPod (over 11 years ago) and iTunes Store (released about 8 years ago). iPad is well on it's way to changing both the book industry as well as the notebook industry and it was released 3 years ago.

What they have been very successful at with their big things so far is to find that sweet spot. A device that is extremely intriguing to the consumer but that also generates revenues for the providers as well. Can they do it for TV? Not sure, seems hard to imagine, but I am not sure I want to bet against them. When they came out with the iPhone there were a tremendous number of cynics that were not convinced they could change that industry but they did.

Will their next big thing come in the next 3-4 months, I am not sure, like Malcolm I own them (at even higher prices) so it would be nice. And it does seem like we are about "ripe" for another big thing since it has been three years since the iPad.

Unfortunately I do believe they have lost one of the greatest marketers of all time. A true genius at exciting people to spend money on new devices that they had no idea they wanted. I have not seen anybody yet from the current crop of Apple management that I feel can generate that same "electricity" around new products, but maybe that is just because they have not had the next BIG thing to sell.

Will the magic continue? Only time will tell!

Thanks for sharing Malcolm!

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

On Wed, Feb 6, 2013 at 2:06 PM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hi Sharon,

Thanks for the reply and challenge to my flawless inner cranium logic! I am a legend in parts of my brain, others, well not so much.

Let's see if I can get these in order...

My Green Felt trade in AAPL is just that - a gamble with my eduction and experience hopefully pushing the odds to 51:49 in my favor (ha!). I want to be in a liquid position - one that I'll be able to recover my cash in a profitable manner in a short time period (three months or so in this case). I could trade the SPY or IWM ETFs but considering AAPL's condition and premiums available I choose to establish a trading position in AAPL.

I don't see the risk of AAPL as all that high considering the way I've set up the position. The stock is off over 20% while the market has continued its bull run. This in spite of AAPL having so many superlatives - awesome sales, $150/sh cash position, highest capitalization etc, etc, etc... I think that the Market will establish a bottom somewhere and that I'm close enough to that bottom to make some serious return on my exposure - I still consider $700+ in five days as real serious (higher than the annual income of what, 150 countries?). The alternative is to put my cash position at risk in a market that is pushing new highs and most of the stocks on my watch lists are at 52 week highs!

Tax exempt account. I laugh at your tax issues, bwah aha ha ha ha! As for liquidating the position, I'll use discipline and options to create positive capital flow and gains on the position. I would even consider writing two or three month out options to get higher premiums with nearer to the money strike prices to encourage Mr. Market to call me away.

The risk of the stock dropping below my basis of $448 and creating a paper valuation loss for me is highly acceptable given that fundamental strength of AAPL. I can write calls farther out to continue to generate income off the position and collect dividends. I really don't see this as a high risk to my position as AAPL has tanked 20% already. And the Market has, by many accounts, room to move up some more (until this Fed Interest Rate bubble bursts, then it will be all heck!). I would not consider a BTC on my position unless it is a rollout that will add to my premium pot. I've learned my lesson about buying back for a loss ... don't do it. Same if the stock moves up and I'm called away. I'll let it happen and take my profits with pleasure.

Ah, Fundamental Analysis. My feeling is that Apple has historically been abused by the Market because Mr. Market doesn't understand what Apple does. The Trading Money may comprehend the model but the Small Investor doesn't. Apple is a Revolutionary Company. For a company such as Apple they are game changers that turn the world upside down. The first Apple II machine was a revolution. The iMac was a revolution. The iPhone was a revolution. The iPad was a revolution.

What the investors don't understand is that once the revolutionary product is released and the impact is registering, the company uses Evolutionary product developments to fill out the products life cycle. You can buy an iPhone 5... but it is essentially an evolution of the original five (just five) year old iPhone. You can by an iMac which is essentially an evolution of the original iMac, etc. The Market sees the Revolution and thinks that it is a fully formed product that will conquer the World on a continual growth pace that is unrealistic. Its just hogwash. The price gets inflated on expectations that the next Revolution will happen very soon and irrational animal spirits are just that - irrational. The Market whips the stock as a Boom and Bust cyclical while the company turns out product and makes money... lots of money. The Trading Money hypes the stock and makes money on the stair climb up and the elevator ride down. The individual investors hear the hype, hesitate, hesitate, hesitate, okay, I just can't miss this ride and buy in near the top. Painful.

I've missed all the Revolutions with Apple because up until last Fall, because I defined myself as an fundamental investor. I research and select stocks that are tortoises not rabbits. Stocks where you can look at the numbers and assume that they have reasonable expectations of continuing. Buy for a reasonable price, hold until you either need the money for medical bills or a house. I've owned Fastenal for over 15 years and have triple digit returns, didn't worry one day about its price unless I had new money to put into the position. Apple never fit that criteria for me - its a boom and bust rabbit.

Now, however, I'm an Covered Options Trader (or worse according to friends and family... a Day Trader!). I ran an SSG on AAPL and it burps out a buy range of $375 to $901 which should be viewed by everyone as the complete joke... I laughed when I saw that! SSGs are awesome for screening a companies past history. It captures the data and then shows the user the information that is easily and simply understandable. It is a great tool for weeding out the bad stocks and giving you some confidence that you've found a stock that is quality.

The only aspect of the SSG that I really appreciate is Section 2. Section 2 tells us how well a company keeps what it makes. If those historical numbers tell you the company has efficiently used the proceeds from the Sale of its products, then you have a company worth looking at for investment. Confirm that the company is broadcasting that they will continue with the same business strategy, then you have a keeper. Find a price you can afford and with potential gains that you like and buy. Apple has no debt for more than ten years. Apple has a stunning return on equity. Apple does a great job on Pre-tax Profits. They know what to do with their Sales... they turn them into Profits.

However, no one knows what the black box of Apple is working on for the next revolution. No one knows how sales in China will effect the earnings. No one knows how Piracy in China will affect sales. No one knows how the sales here in the US will be affected by the population realizing that the end of the world isn't happening. The iPhone and iPad were released and have incredible sales during the greatest economic recession in the history of the United States. Let that sink in... the company made Billions of dollars and became the richest company in the world during the Great Recession when the Employment in the US was a dismal 89% - not the 96% of the roaring 1990s and 2000s. They made Billions of dollars while the EU nearly collapsed. They made Billions of dollars during the Arab Spring. How much money will they make when the World is not depressed, collapsing or on fire?

Apple, unfortunately, is still in the thrall of speculators and subject to a huge pile of money just waiting for positive news to "catch it on the way up". Look at what happened today (6Feb13)... Ex-dividend (first) tomorrow. Some highly respected crackpot with some spectacular luck and as many flaming craters, mentions Apple in a story. No one read it, but his name, the mention, the story... Stock jumps from 452 to 465 IN TWENTY MINUTES! Do a one day line chart at five minutes for today and wonder. Nothing changed in sales, no new product, no revolutionary product release, nothing... 13 points, $12 Billion added to the market capitalization because someone mentioned Apple's dividend that triggered rumors. Pfaw... Bill Miller is a dunce or just mugged the market - the dividend was just announced in January, who in their right mind would think the company will raise the dividend between the announcement and ex-dividend date?

Lastly, and my apologies for the novella, I always ask two questions when considering investing money hard won into a company: Can this company go bankrupt and why? Can this company double its price and why?

For Apple - no, $150/sh cash, $138,681 Million in assets. Yes, but they'll need to release another Revolutionary Product or colonize another planet. A double would be over $800 which is a tall wall. Everything in between a wild ass guess - $375 to $901...

Push comes to shove, I would be happy to own Apple for the three or four months I hope to have the position. I don't think I'll have the company in my portfolio much beyond that time frame - I'm exposing a bit more money than I'm used to in one company. When we're able to write mini options, I'll reduce my position and keep writing IF I'm still in the trade.

Sincerely,

Malcolm

ps for those who remember - Sierra the French Bulldog has shown great progress from her surgery. She will never be 100% as her spine was repaired, not replaced... but the great news is that she is well and sound enough to be adopted!

On 1/31/2013 11:20 AM, Sharon McAllister wrote:

Hi Malcolm,

I enjoy your entertaining writing style.

Here's a homework assignment for you to think through:

You wrote: "So, my Green Felt trade on AAPL - I want to be liquid and able to create a cash position quickly if I have too."

If that is the case, why commit yourself to an option's contract to cover up a stock position by selling a close out of the money call that will expire in 16 days? Did you consider that based on the PnF chart above, AAPL's price has dropped more than 20% of it's value since the high price it set on January 2nd: a drop which represents over $100 per share -- (that's more than $10,000 for 100 shares)? All of this negative price action happened while SPY was making new highs. Based on what I see on your two PnF charts, the relative price strength of AAPL compared to SPY is lousy. This speaks to me of a tremendous opportunity cost on a high risk trade. It's a bit like picking up pennies in front of a steamroller. Does the risk:reward make your latest options' trade worthwhile and attractive?

Did you weigh your option to sell your shares of AAPL outright at a small gain in order to immediately free up your cash? Did you examine what a deep in the money call might bring to the table for you? Keep in mind, that tax rules for deep in the money calls are something to be aware of if your trade is in a taxable account. Paul can explain the tax rules better than I because I do all my options trading in non-taxable accounts.

How will you manage your trade if AAPL's price pushes down below $432, which would be the price where a PnF sell signal would be generated? I presume at that price you will have then ponied up more money on the table to buy back your covered call position. Do you want to shell more money out to close this particular covered call?

If AAPL's price does push up, will you enter a combo order so you can pay one commission to BTC and then immediately sell your shares for a net debit?

Finally, what did your updated fundamental analysis tell you about APPL's earning results? What about management's effectiveness with respect to that barbed wire fence: did they pass muster with respect to ROE, and PTPM? Is AAPL a quality growth company with good growth potential going forward? How likely is past performance likely to proceed out into the future? Do you want to own AAPL?

Did you see Greg Schnell's recent blog entry about AAPL's technical analysis?

I am cheering for AAPL's stock price to go up because a friend of mine has a position.

I also apologize in advance for asking so many questions. Please think through the answers to what I have written: put them in your trading journal. You may share them here on the Cool Club discussion list if you would like to share them. It's not necessary for you to turn in this homework assignment to anybody other than yourself.

Like you, I learn the most from real money trades.

Enjoy the dividend... AAPL goes ex-divvy Feb 7. Then again, you may be called away early and live to tell about it. <grin>

Sharon

On Tue, Jan 29, 2013 at 4:48 PM, Malcolm Myles <malcolm@mmyles.com> wrote:

Hello,

Quite the heady days of froth and foam! 14,000 is but a number but it is so even, so round, so big it just can't be ignored by the talking heads who claim they want nothing but surety in the market and then present six contrasting views of why 14,000 is so... important/unimportant, monumental/insignificant, worthy/unworthy, the top/far from the top, etc, etc, etc. Beware the Jaberwocky...

I wrote my call on my newly disappointing position in AAPL (I've been informed that shareholder ownership does NOT convey free Apple products, imagine my dismay).

28Jan13 STO 1x 13-02-16 465.00 @ $5.50, APR 23%, $541.06
Expires in 14 trading days
BTC if premium drops below $1.10 (20% of orig)
Exercised - Well, here's the rub... the math says I'll have $2,158 take home which would be a good months salary for 95% of the US. Oh, I'll have my principle back in my account too.

As I mentioned, this is a Green Felt play (using my FAST proceeds). I believe we are in a internal bull market - a bull market within a bull market. All indications are that any piece of bad news will send a lot of people packing and the market will drop. My plan for such a circumstance is to watch movies at the theater, walk the dogs and continue to enjoy my life. My portfolio has quality stock positions that will survive any market relapse as it did in '81, '87, '97, '07 and if it is a cataclysmic event, well, my portfolio won't really save me from apocalyptic events.

Why I took this position is based off of this chart from Stock Charts, it is a Point and Figure Chart for Apple:


As you can see, the stock has been thrash in the last few months but has had the barest of "turn around" events in the recent days. I hope to capture just a portion of a confirmation of this reversal and get back into cash. If the reversal is false and continues down, I'll be in a loosing valuation - Green Felt Trades have risk - and continue to write CC as I am able above my basis of $443 of one of the richest companies in the World.

This is also a live training trade for me. (I'm sorry, I know it is preferred, but I just can't trade in a false account. I'm a trained Biologist and to "dry lab" anything is just anathema to me). I want to incorporate P&F charts for my overall investing strategy and for my option trading. Case in point - here is the SPY P&F chart. The RSI for SPY is 75.63 which means a pull back, but I doubt that the pull back will break the blue trend line in the 120 range - that would be a pretty significant move. While we are nearing an all time high in the markets, there is some room for it go for a while longer, with bumps down to the blue line of course. The higher and longer it goes, however, the greater the worry. So, my Green Felt trade on AAPL - I want to be liquid and able to create a cash position quickly if I have too. When AAPL starts mini options, I'll be first in line to reduce my exposure too.


Plenty of resources on Ivestopedia and StockCharts about P&F Charts. I'm still learning so don't take anything I say as sound advice... except going to movies and dog walking, those you can take to the bank.

Cheers,

Malcolm

On 1/25/2013 1:14 PM, Malcolm Myles wrote:

Player rolls a... 4 and 3, Craps out...

Apple tanked again to $439.85 after blowing by my expertly determined bottom of $450.

Hey, I own Apple! 100 shares, at an immediate valuation loss of $9.01 per share! Whee haw... I get a new iPad with that right? Apple people? Shareholders get free stuff? right?... right? free stuff?...

Monday I'll write a CC on my 100 shares with a short expiration date at somewhere above $448. Write it up, set my alerts and keep an ear tuned to the birds outside... that birdseed won't spread itself you know!

Saw a great quote - Never complain about getting old. It is something that is denied to so many!

Malcolm

On 1/24/2013 10:06 AM, Malcolm Myles wrote:

Apple got whacked. Hard. Sooo...

STO 1x AAPL 13-01-25 450.00 @ 1.50, APR 112%, Net 141.05 ($10 lower than the shake out, 1 day out)
Trade went through from the sofa with my iPhone at 11:30am EST after the news was sinking in that the stock was off 10% at the open.

Expiration worthless on Friday... just need to do it ten more times to pay for my Apple products
Called on Friday... write a call right away, do it ten times to pay for my Apple products
BTC... right... if I can, my BTC price is below $0.19, stock would have to be at $465 sometime tomorrow in order to get to that price, possible, not probable.

Pure and simple Green Felt play hoping to pay for the iPhone, iPad, iPod... iHope there isn't any iPain.

Cheers,

Malcolm