“In light of the recent sell-off in global equities, it is now an incontestable FACT that Apple is the most undervalued and underappreciated large-cap growth company in America. The stock trades at an extremely depressed valuation that Wall Street isn’t taking seriously (8.25 P/E Ratio), the company’s growth continues to outpace every large cap company on the entire S&P 500, and the company’s growth rate percentage – defying all laws of gravity – continues to accelerate without any sign of abating.”
Read the whole Andy Zaky’s take on Apple Insider:
conshmillo 6:32 am on November 28, 2011 173 days ago Reply
Maybe better question is how much price to earnings matters in stock analysis in 2011. When someone analyses stock they do it by considering various factors. For me it is enveloping technicals vs individual (enveloped) technicals plus correlations between enveloping factors. For someone else it’s P/E and debt and earnings figures and other fundamentals. For someone else purely technicals of individual stock. Someone else maybe be basing it on amount of positive articles in the news. Maybe P/E doesn’t have the same analytical value it used to have.
Nicu 6:52 am on November 28, 2011 173 days ago Reply
It’s the same old short term vs. long term (voting machine / weighting machine). There is no way cash accumulates faster that the market cap forever. If Apple does not slow down earnings growth, in 3 years it will have more cash that today’s valuation. A company that is still growing earnings (slower probably in 2014) cannot be valued less than its cash. It’s like being able to buy a house for $100k and have a buyer for $200k already signed. We live in a very strange and uncertain and cash hungry market and the irrational valuation is just a tremendous opportunity for the long term investor, nothing else. All those who sold or decided not to buy (when trying to answer should I or should I not ?) will kick themselves in the b**** sooner or later.
JPWatkins 6:28 pm on November 28, 2011 173 days ago Reply
So Nicu. I’m trying to decide what to do.
What do you think is the best way to exploit this with minimal fuss and risk?
Jan Call options? Longer term calls? Some more exotic configuration?
Just curious, as I’m not experienced with options etc.
calvin 6:35 pm on November 28, 2011 173 days ago Reply
Options in general are risky, most of them expire worthless. Having said that, if you’re still interested in Calls, I prefer April 2012 for short term & Jan 13 for medium term in my portfolio. There should be a decent ramp-up around the next earnings barring a total catastrophe in Europe. April options would provide enough time to wait for this ramp-up.
JPWatkins 7:20 pm on November 28, 2011 173 days ago Reply
Risky, yes. But the risk is known and limited (I’m talking about buying options, not selling contracts.)
They do tend to expire worthless of course, since their time value goes to zero as expiry approaches. The point is to sell them *before* they expire. I wouldn’t have the funds to exercise them anyway.
Nicu 8:51 pm on November 28, 2011 173 days ago Reply
I think Jan ’13 calls with a strike as low (not in the money) as you can afford. I think anything up to $500 should end up in the money nicely. But hey, if the euro breaks down, AAPL may stay irrationally low even for one year. So evaluate your odds and make your own decision. And in any case, don’t go all in at once
JPWatkins 10:47 pm on November 28, 2011 173 days ago Reply
Thanks, Nicu,
I’ll check that out.
Is your thought that longer term options offer greatest overall potential or the safest option deal?
Is this a longer term strategy, selling them a few months before expiration? Or do you see them as a shorter or medium term bet with extra margin for safety (time value padding?)
“And in any case, don’t go all in at once”
Hard not to with the cost of a single AAPL contract so high!
on the other hand, it makes the commission cost less of a factor.
Nicu 11:28 pm on November 28, 2011 173 days ago Reply
If there is no catastrophic event, I feel that any Jan ’13 call between $450 and $500 strike should do a 5x. So you may sell as soon as you see a 3x during the first 3 months, 4x during the next 3 months, 5x anytime later; if you still have them during the last 3 months, you should accept lower multiples 4x, 3x or so just to be on the safe side.
Many times I also use the following strategy (works better with lower strikes): say you have the $450 call and the stock is $480. Now you should be able to sell the spread $450-$460 for $6.5 or more. So you get $650 minus fees for one contract and you replace the $450 call with a $460 call. It may seem stupid to take only 2/3 of the profit ($10 max), but you have this cash sooner so you can invest it in other stuff. If you make 1.5x on it until the option expires you’ve done great. Also, you take some of the risk off the table. Say you payed for your call $35. Repeat this step (selling the spread) five times, thus being left with a $500 call and well north of $30 in cash, you basically got your call for free. Also, if after going to $500, the stock comes back to $430, you can buy back the spread you sold for $6.5+ at half price. Thus you have the same thing as at a previous step (same call) but some extra cash.
I’m very bad for the short term, maybe consh can help, but I would wait for a small pullback to get in. It seems to me that all this rally was just on rumors about Italy that were denied by IMF and Bruxelles. Market still continued to rally afterwards. I think a general nervous breakdown is happening before our eyes.
Good luck !
conshmillo 5:10 am on November 29, 2011 172 days ago Reply
It’s all good advice from Nicu. You definitely want to buy rather less contracts (more expensive) further away, than more contracts (cheaper) that are closer to expiration. Name of the game when playing options is to ride the waves. There are two basic ways how to go about it. You heard this from me before but regardless here it is again: Reversals and Breakouts. In very simplified terms when you play reversals, pick your timeframe (intraday, daily, weekly) and wait for crossovers on MACD (you can use also stochastic as a fine tuner). When you see bullish crossover on MACD (or close to) start gradually loading up on calls. If bearish cross start gradually loading on puts. Set upfront how many times you will cost average till you get your final entry price. Cost average only when it falls by a good chunk otherwise be happy even with smaller position. Don’t chase. There will be another opportunity. Waiting is your biggest weapon. It does’t cost you anything. That’s the meaning of the big Lao Tzu banner here at Traderhood. Your timeframe is most probably daily. That doesn’t mean you trade daily but that you choose daily charts (as opposed let’s say 5 minutes charts for intraday trading). For daily timeframe I use 3 months/daily chart. That’s about 60 bars on chart.
When playing breakouts you are betting for price to beat some well established support or resistance. If price manages to do so there is usually nice skyscraper or in case of breaking support there is nice avalanche. When playing breakouts you want to have tight stops because you are buying at the top and if breakout doesn’t materialize (as it often doesn’t) you bought for worst possible price because you bought at the reversal.
Don’t try to play reversals and breakouts at the same time as you will gyrate between those not benefiting from either one. You can start playing them at the same time when you get more used to playing theme each solo first.
For daily time frame I think we are in a very good place to start loading up. Nothing is sure ever as you never know for sure what some macro influence will be. Like getting pounded by euro so many times that we are all sick of it by now. But trading is game of odds. You start loading up when odds are improving. On AAPL we will probably see some hesitance if upswing continues somewhere around 387. That’s where 50 EMA currently is.
Check this 3 months/daily chart and see where 50 EMA currently is and how MACD is getting ready for bullish cross. Stochastic is in a great position to start upswing too.
http://bigcharts.marketwatch.com/print/print.asp?nosettings=1&symb=aapl&uf=0&type=4&size=2&sid=609&style=320&freq=1&time=6&rand=1054430731&compidx=aaaaa%3a0&ma=2&maval=50&lf=32&lf2=4&lf3=0&height=444&width=579&mocktick=1&showColor=True&returnUrl=%2fadvchart%2fframes%2fframes.asp%3fshow%3d%26insttype%3dStock%26symb%3daapl%26time%3d6%26startdate%3d1%252F4%252F1999%26enddate%3d11%252F28%252F2011%26freq%3d1%26compidx%3daaaaa%253A0%26comptemptext%3d%26comp%3dnone%26ma%3d2%26maval%3d50%26uf%3d0%26lf%3d32%26lf2%3d4%26lf3%3d0%26type%3d4%26style%3d320%26size%3d2%26x%3d45%26y%3d20%26timeFrameToggle%3dfalse%26compareToToggle%3dfalse%26indicatorsToggle%3dfalse%26chartStyleToggle%3dfalse%26state%3d11
JPWatkins 8:15 pm on November 29, 2011 172 days ago Reply
Thanks again for the explanation guys.