As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.
Further Explanation to: Trade Alert - (AAPL)
Buy the Apple (AAPL) June, 2013 $380-$410 Call spread at $27.65 or best
expiration date: 6-21-2013
Portfolio weighting: 10%
Number of Contracts = 4 contracts
Forget about utilities, consumer staples, and pharmaceuticals. Apple (AAPL) has become the new defensive stock. Take a look at the market action this week.
The Nikkei average has collapsed by 2,000 points in two days. The S&P 500 has given back 2.4%, with some individual sectors, like utilities seeing mini flash crashes. In this confused, volatile, and frightening environment, Apple has actually managed to go UP!
This could signal the beginning of the long awaited rotation into the technology sector, superstar for the last five years, but a definite laggard in 2013. It is also a play on the company’s long awaited flood of product launches expected in Q4. But more importantly, investors are looking for a place to hide in the wake of the recent spectacular returns brought in by much of the rest of the stock market.
When my personal hedge fund heroes, like value players Omega Advisor’s Leon Cooperman and Greenlight Capital’s David Einhorn, take interest in a stock at these levels, my interest perks up. There is no way one of the world’s best run companies continues to trade at half the market multiple.
It also helped that CEO Tim Cook was dragged up to capital hill to get a thrashing over the firm’s international taxation policies, but came away looking like a well principled genius. Senator John McCain even asked a simple technical support question at the end. Talk about the lamb lying down with lions!
Technical analysts have also fallen in love with the stock. Look at he chart below and what you see is a classic reverse “Head and Shoulders” formation. This suggests that a major trend reversal is as hand and augers well for the stock.
By the way, my apologies for the Trade Alert text system yesterday, which went “rogue” and sent out the Apple Trade Alert to buy the call spread automatically every five minutes. I hope none of you now are 200% long Apple. It took us a while to pull the plug and get the provider to fix it. These third party online services are never as good as they say they are.
You can still do the trade today because the spread hasn’t moved much. That way, you can harvest the time decay over the long Memorial Day Weekend.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. Don’t execute the legs individually or you will end up losing much of your profit.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months farther out.
Here are the specific trades you need to execute this position:
Buy 4 June, 2013 (AAPL) $380 calls at……………$64.75
Sell Short 4 June, 2013 (AAPL) $410 calls at.…….$37.10
Potential Profit at expiration: $30.00 - $27.65 = $2.35
($2.35 X 100 X 4) = $940 – 0.94% for the notional $100,000 model portfolio.