Friday, October 19, 2012

Crazy Trade to put the fun back in this ugly Friday: 'Sold Sprawl'

This is Friday and from time to time I like to post something 'different.' Also given the broader markets plummeted 2 to 2.4% today's (10/19/2012), we need a little fun! Here is a trade that you won't see on CNBC.
Okay, so I want to participate in a company's earnings. It's a great company that sells every trinket it makes and almost everyone in the world is willing to buy its products and at a premium.
So what's the problem? Can't I put a trade on based on analysis, channel checks, and technical dissection layered with Fibonacci levels, moving averages?
Lately, it would seem that the market reactions to the earnings override all the research and analysis. That being said, I don't want to gamble my money away on how the markets will react to numbers that could have been blow outs but a comment (or even the CEO word count - Sergei 1st call after his return to Google) could have an adverse reaction and the stock could lose 10%.

Here is a setup that puts almost NO dollars at risk while gives me a chance to profit off big moves. Sure I could buy strangles and hope for a big enough move for it to be in the money but I don't like those odds. Besides, this if crazy Friday trade. I call this a 'SOLD SPRAWL' (totally made it up):

Instead of buying a position I sell 2 spreads ALL In the money: One call spread and one put spread. SAY WHAT? all in the money? Yes, Since they are already all in the money (the wrong way) I can't lose any additional money (other than a few pennies for order execution issues). I am putting on a trade that is already all under water.

The trade:
Say earnings are coming next week, I will use the weekly options. Expectations are likely that it will move 8-10% so the 1-wide spread premiums are close to $5 at those edges of the predicted move.
* Position A: sell credit Put spread way above current price so all in the money (I need to see premiums next week). +$4.9. Here I am going long it at the high level chosen
* Position B: Sell credit call spread - as close to all in the money as possible and take in 4.9 or more? premiums should be juiciest during the week.  +$4.9. Here I basically am shorting the stock at the level chosen.

In both cases, the maximum I could lose is ten cents $0.10 since both positions are already as bad as they get (almost all the way under water).

Scenario 1: Stock sells off hard.

Position A doesn't improve and I will likely take the .10 loss I mentioned earlier.
Position B improves tremendously and I can likely buy it back for much less than I took in. If the move was full as expected by options premium then the profit on the credit call spread could be close to full so make $4.5 or more. Even if the move turns out to be half of expectations, I still get to profit $2.5. PosA loss is the same; Pos B profit is half.

Scenario 2: Stock Pops huge. This is the exact opposite of Scenario 1.
Position A improves by the size of the pop; so if close to full pop then profit should be around 4.5.
Position B doesn't improve and again likely to take the ten cents loss.
Even if the move turns out to be half of expectations, I still get to profit $2.5. PosB loss is the same; Pos A profit is half.

Scenario 3: Stock does nothing.
position A & position B do nothing and I can buy them both back for about as much as I took in to put them on + commission.

I will paper-trade this next week w/$AAPL and see what happens. I will post.

There is another possibility which is getting assigned if someone exercises their options on me so I make sure I have enough margin room to not lock up my account. Since they are $5 spreads if I get assigned then I can immediately exercise my protection leg and not lose much anything more than what's described above.

One more risk is an early report release (can you say Google?) or a pre-announcement of sorts from the company.


$GOOG and $AAPL worries

The Sentiment: EVERYONE is worried that google can't monetize mobile.
A Few Facts:
Fact: google dominates search monitization with no second place in sight. MSFT tried hard and got on tv advertising its alternative to no avail (other than the initial pop).
Fact: everyone agrees that mobile 'seems' to be the wave of the future.
Fact: Google is working hard at it. And given its know-how on search and its formidable war-chest it has the best chance at succeeding than any one else. It's like expecting NASA to get to Mars 1st and not a new-comer like the Bronson effort to conquer space.

Possible Outcomes:
Scenario 1: mobile search fails in general and google remains the king of the desktop search => buy google
Scenario 2: mobile search really takes off as people embrace 'buying' on smart phones and who better to capitalize on this other than the owner of more than half of the world smart phones? google! => buy google.
Scenario 3: we get hit by an EM blast and we lose all tech worldwide => sell everything.

Scenario 3 is not a smart ass remark; it's to say that anything can happen at any time BUT BUT BUT if I can't risk money on companies like google and apple (who dominate ALL competition) then I should stick my money in a bank for .25% interest and call it a day. Mid to long term, Google and Apple are solid bets.


Wednesday, October 3, 2012

$AAPL v. the rest

Earlier today I tweeted that the market chatter about firing Tim Cook this week was a warning shot to him. The market was telling him that he'd better get it right on the next release or the heat will grow. For that, I was the one who got the heat as readers/Appellonians misinterpreted my point.
I am long apple mid to long term.
I even had someone using a silly "quality" analogy. They used apple = Ferrari (quality) and others = Accord (not quality). Huh? clearly they haven't owned a Ferrari. Accord will go 100k miles with no problems; Ferrari will need a fortune (more than the price of a full accord) in maintenance over the same 100k. Oil change runs over two grand. I will borrow this analogy in closing.

Having said that, let me RE-start by saying I am NOT an AAPL hater! Apple produces AWESOME, TRENDY, GROUND-BRAKING products. No doubt that Jobs was a brilliant man. All I ask is that you read this with an open mind.

(brace yourselves) I DO PREFER NON-APPLE PLATFORMS (phones, tablets and pcs).

Background: I have a degree in electrical engineering and am very comfortable with tech. Now I manage money for a living.

My beef is not with people who like apple products. My beef is with the ATTITUDE that AAPL products don't break AND that everything else does. It's not true; everything eventually breaks and maybe one day you will find that out too.

I am not trying to convince you to buy non-apple; I am merely explaining the non-apple point of view.
I choose non-apple products for the following reasons:
1) Most (if not all) alternatives are cheaper. I bought my quad-core loaded Lenovo (previously ibm) for $265. Done. What will that get me in aapl terms? not even half of an ipad.

2) Microsoft products don't break down every five minutes. When they do break, I know that I can fix them. The hardware is easy and modular and the software is always recoverable. Every person that I know that had an issue with their apple machine (YES, problems do occur in mac too) had to drive to the genius bar and put up with condescending teeny boppers who made them feel like idiots for just being there. Often enough, the users end up upgrading instead of fixing the hiccup.

3) Software: I prefer (personal taste) the feel of the microsoft software. Although I noticed that MS is starting to feel applesque (big buttons etc).

4) Security: as Macs become more ubiquitous, there will be more hacking of their products. Hackers go where the masses are because it makes them money (cost/reward for them). As the mac numbers grow so will the hack attacks.

Bottom line: I say it again Apple produces AWESOME, TRENDY, GROUND-BRAKING products. But that doesn't mean that all the alternatives are shit! As more people are using apple products there will be more breakages and more feeling of frustrations then the aura of invincibility will fade.

To use my new stocktwits friend with the Ferrari analogy... For practical and financial reasons, I would rather buy an Accord over a Ferrari and that should be ok with everyone!