Bittersweet Bite Out Of the Apple
In some ways Apple has been the best idea I shared with you in 2007. As the stock breaks through the $200 barrier, which was my original price target (now ratcheted up to $225 two BLOGS ago), I have formally changed the price target/SSL to $225 and $175 respectively.
AAPL’s charge through $200 is bittersweet for me as I wrestle with the next dilemma. As I previously disclosed, I still own 10 Jan 130 calls at $12.30- about a $12,300 investment. As the stock breaks through the $200 barrier, that investment is currently worth about $71,000- that’s about 7 times my money since the middle of August- one of the better trades I have made in a long time.
Here’s the problem- these options are going to expire the third Friday in January, and I want to keep a long term position in Apple- one that can appreciate with the next two waves of growth- specifically the dramatic growth of iTV along with dramatic growth in MAC sales.
Have you heard the term “Halo Effect”? Apple has it. Everything the company does is angelic. The positive vibes emanating from several of their product lines (iPhones and iPods) are carrying MAC sales up with it. iTV will follow next year. Did you read what happened today? Rupert Murchoch signed on to provide movies to iTunes from Time Warner. Why fight the rising digital tide in entertainment distribution?
Here’s the chart, dating back to my first edition on the company in August. I’m definitely tooting my horn on this one a little, but I’ve earned the right:
Nothing but good calls and a fun ride on this one. I hope you were on board.
So, what now? I’d like to have some kind of position in this stock for the next couple of years, but it’s awfully tough to buy up here. Between now and the third Friday in January I have to either sell my calls or exercise the option, which might not be a bad idea.
I’m not sure how to do it yet. I will continue to hold on to the options into January as I believe there could be another leg up as the volume of AAPL products sold during the Holiday Season pushes the stock a bit higher. I believe the big surprise will be in MAC sales, where the success of the iPhone combined with the positive reviews of the new Leopard Operating Systems are fueling demand. As a percentage of the overall PC market, MACS have the most upside, and they are now becoming more main stream.
What to do stay invested in AAPL? A very high class problem, but none the less still a problem. I’ll let you know.
Comments and questions are welcome.
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I’ll step up and say thanks, had a great 2007 and largely due to your newsletter. Guess some will always find a way to complain. I’m holding a position in AAPL, but am looking forward to what comes next. Any new micros on the way?
Editor: I’m a little concerned about the US in ‘08, so I am looking at a couple of new ideas in China. I’ve identified the first one, but probably won’t be able to begin covering it for a month or two as it is not public yet. We have to be looking at some green and alternative energy stories as well.
Comment by Don — 1/3/2008 @ 11:31 am
I happy you made money witk aapl but a monkey could have pick that one. Now lets do a blog on tcgd I don’t think you will be patting yourself on the back over that one
Editor: Probably true- how about SPKL, TTGL, PNWIF, and a few others. This is the only place you read about those stocks. You can’t win them all. If you are still holding TCGD, you have held it below my SSL, so you shouldn’t be concerned. You have made the decision to become a long term shareholder. If you have, why worry. Let’s see what happens in 2008.
Comment by jim — 12/29/2007 @ 9:23 am
one could sell the apple calls at the 73,000 then buy the 365 shares of stock and with the proceeds buy 35 more shares of apple and t hen sell 4 covered Jan 220 calls at 2,200 each. You would still have the 400 shares of apple at whatever price and then waiting until the third week of the month and again, sell covered calls with more stock.
Editor: Own the stock and sell the covered calls- not a bad strategy, but limits your upside. I have always felt selling covered calls was a great way to generate income from more stable stocks. However, with a streaking stock like Apple, it might be better to either own the stock or roll up the calls. I believe I am going to wait for some news in early January on Holiday sales. If the stock surges, sell the calls, and buy more long term, out of the money calls. I’ll probably double the amount I invest this time. I now believe the stock could go $275 to $300.
Comment by David G Harris — 12/28/2007 @ 9:36 am