Apple daytrading: How to cash in on the Macworld keynote effect

A post that I had put up on my board yesterday:

Currently, AAPL is trading at 194.90 (1/2/2008 @ 12:59pm CST). The options are trading as follows:

January Call Options

Jan 185 Calls (APVAQ): Bid $15.00, Ask $15.10 (200.00 value, $1500 per contract)

Jan 190 Calls (APVAR): Bid $11.80, Ask $11.85 (201.80 value, $1180 per contract)

Jan 195 Calls (APVAS): Bid $9.00, Ask $9.10 (204.00 value, $910 per contract)

Jan 200 Calls (APVAT): Bid $6.70, Ask $6.80 (206.70 value, $580 per contract)

Jan 205 Calls (APVAB): Bid $3.45, Ask $3.55 (208.45 value, $345 per contract)

January Puts:

Jan 185 Put (APVMQ): Bid $3.95, Ask $4.00

Jan 190 Put (APVMR): Bid $5.60, Ask $5.65

Jan 195 Put (APVMS): Bid $7.70, Ask $7.75

Jan 200 Put (APVMT): Bid $10.25, Ask $10.30

Jan 205 Put (APVMB): Bid $16.80, Ask $16.90

February Call Options

Feb 185 Calls (APVBQ): Bid $21.25, Ask $21.45 (206.25 value, $2125 per contract)

Feb 190 Calls (APVBR): Bid $18.45, Ask $18.70 (208.45 value, $1845 per contract)

Feb 195 Calls (APVBS): Bid $16.05, Ask $16.15 (211.05 value, $1605 per contract)

Feb 200 Calls (APVBT): Bid $13.80, Ask $13.90 (213.80 value, $1380 per contract)

Feb 205 Calls (APVBB): Bid $9.95, Ask $10.10 (214.95 value, $995 per contract)

At these prices, a person owning 300 shares wanting to pull $40,000 off the table would perhaps consider the following items:

Mac World (January 14-18): Typically new Mac products are introduced during the conference. Using economics talk, I would believe, all else held constant, that AAPL would have a positive run leading up to the Mac World conference.
A quick analysis of the stock price leading up to and following the MacWorld Expo last year yields the following observations: The stock was in a short-term downtrend leading up to the Expo. MacWorld was held on January 8th, 2007. The stock began an upward movement on December 28th, 2006, four trading days prior to MacWorld. The move from the low on December 28th to the high on Jan 10th represented a 22.79% upward movement ($79.65 to $97.80, or $18.15 gain per share). The stock rose to $97.25 on January 17th and fell precipitously to a low of $85.51, or 12.07%, by January 23rd, five trading days later.

AAPL Graph 12/1/06 to 2/20/07

AAPL Graph 3/1/06 to 8/1/07

My theory for trading this:

Given sector performance and expectations, AAPL will likely stay between $190 and $200 leading up to MacWorld.
The stock will begin to gain upward movement 4 to 7 trading days prior to MacWorld with the expectation of big news from Steve Jobs. This would mean the price will begin moving upward between January 3rd to January 8th (again, assuming all other variables remain constant).
The stock will move above the $200 resistance point (mental sell point and mental scary to buy point for many investors) on January 10th. The stock will increase to at least $215 by January 16th, drop on the 17th and hit a new 52 week high on January 18th.
Options expire January 22nd. Options decrease in value as they near expiration. This is known as decay. This occurs because as the option nears expiration, the value of the stock is less likely to change by a significant amount. The change in the value of the stock is called volatility. Traders refer to it as Vol. The higher the volatility of the stock, or the more the price is moving around by great percentages, typically the higher the price of the options. As last year has shown, there will likely be high volatility leading into and following MacWorld. This will likely cause decay to not have as great of an effect on the pricing of AAPL options, meaning the sale of covered January 22 expiration calls will still yield a decent return. The price will likely fall off precipitously 3 trading days after MacWorld. This year however, I expect the peak of the runup to occur on Friday the 18th. Friday’s are always tricking for trading as most trading firms do not like to hold positions over the weekends. As a result, Thursday may be the best day to unwind a position, sell covered calls and purchase puts.
Selling covered calls and buying puts is what I call a straddle (not sure if that is the correct term). I have used this strategy when I feel a stock is likely to go down. By doing so, in essence, you make money twice when the price falls and have security against downside potential. As an example, let’s say that you expect AAPL to hit a high of $215 on January 17th. On that day, you sell one January $215 call option for $10 per contract. That would mean you get paid $1,000 (less commissions). You expect the stock to fall back down around the $200 mark by January 22nd (the day that January options expire). With the $1000 that you have been paid in premium, you buy a $200 put option for $2.00 costing you $200. This means that someone has to buy your shares for $200 if the price goes below $200. As the price drops from $215 to $200, the price of the call option that you sold will go towards $0 and the put option you bought will increase in value from $2 on up (not sure of what it will go to exactly, but it should increase in value). If the price stays above $200, you would sell the put option for a gain, if possible. If the price falls through $200, you could either keep your stock and sell the put option for a gain before January 22nd, or keep the put option (meaning you exercise it) and your stock will automatically be sold for $200.
If I had 300 AAPL shares, and wanted to take some skin out of the game, I would sell 100 shares on January 15th outright, use the strategy above buying selling 1 covered call on January 17th buy one put option and wait for January 22nd, and then hold 100 shares. That way you lock in profit, use the options to perhaps gain some additional money and hold some shares for the longer term in hopes of Jobs continuing his domination.
I will add some definitions to a page on this board to help explain call options, put options, volatility, decay, and some other terms to help some better understand this.

(revised)
AAPL may have had trouble penetrating $200 these past 3 days, but I’m ready for big gain as we approach Macworld on Jan 15.

To take advantage of the Steve Jobs Keynote Effect, you could have bought AAPL yesterday on Jan 2 — 9 days before Steve’s address. Here are the gains for the past 7 years, assuming you bought on the close 9 days before, then exited (A) on the close of the day after, or (B) on the day of the Keynote, or (C) on the day before:

A B C
7 YR AVG: 9.6% 8.8% 7.7%

2007: 18.0% 12.6% 4.0%
2006: 13.0% 8.9% 2.5%
2005: 1.6% 0.2% 7.0%
2004: 13.8% 11.3% 11.7%
2003: 0.4% 2.6% 2.9%
2002: 7.7% 9.1% 12.9%
2001: 12.7% 17.2% 12.8%

There is a gain in every case, but C is perhaps the best — unless Steve hits it out of the park again. Strategy C gives up some expected return in exchange for the lowest variance. I’ll wait and see the build up to MacWorld before deciding whether I’ll leave my position on till the day after, or pull it sooner.

“Let’s see. If I invested $1000 in IBM stock in 1694 and did the splits, what would it all be worth today?”

If you invested $1000 in IBM stock in 1694, I want to see those certificates.

AAPL may have had trouble penetrating $200 these past 3 days, but I’m ready for big gain as we approach Macworld on Jan 15.

To take advantage of the Steve Jobs Keynote Effect, you should have bought AAPL yesterday on Jan 2 — 9 days before Steve’s address. Here are the gains for the past 7 years, assuming you bought on the close 9 days before, then exited (A) on the close of the day after, or (B) on the day of the Keynote, or (C) on the day before:

A B C
7 YR AVG: 9.6% 8.8% 7.7%

2007: 18.0% 12.6% 4.0%
2006: 13.0% 8.9% 2.5%
2005: 1.6% 0.2% 7.0%
2004: 13.8% 11.3% 11.7%
2003: 0.4% 2.6% 2.9%
2002: 7.7% 9.1% 12.9%
2001: 12.7% 17.2% 12.8%

Strategy C gives up some expected return in exchange for the lowest variance. I’ll wait and see the build up to MacWorld before deciding whether I’ll leave my position on till the day after, or pull it sooner.

How do you like them apples?

Any thoughts on if AAPL will split anytime soon? At $200 a share that should be a good place to consider a split, dont you think?

RIGHT-ON, MIKE!I hope you are expressing this in other forums as well. This won’t catch too much attention in a Mac forum, except other admirers.Try political forums, particularly the Republican ones, but both need educating.

Let’s see. If I invested $1000 in IBM stock in 1694 and did the splits, what would it all be worth today?

Forget it. You morons have outsourced over 50 million jobs, you have displaced our own technology sector workers with cheap foreign workers from China and India, frightening off U.S. students from engineereing and software development, you have outsourced our most critical technology, you have defrauded and cheated consunsumers into buying bogus loans and other investments ruining them. Now, the dollar is just at about $1.50 to a Euro, OPEC is seriously considering pegging the price of oil to the dollar, and inflation is about to become a vicious monster that will utterly destroy the Middle Class. Every critical piece of our infrastructure is made offshore, now. We no longer have a manufacturing sector that amounts to anything. Everything from the wire in our homes, to the paint, carpeting, and every appliance is made somewhere other than the U.S. Those cheap labor market costs have now passed the ever declining U.S. dollar. So a vicious cycle of increasing prices, stagnating or even lower wages and benefits (except for public sector employees!), rising unemployment, coupled with the oh so uncompfortable ancillary rising divorce and crime rates, is going to wreck the U.S. economy and take a lot of our social infrastructure right along with it. The advocates of outsourcing and “free trade” are going to (rightfully) take the blame for this and I would expect to see more than a few criminal trials, wealthy brokers taking up residence in Dubai, and more than a little violence directted at the wealth and their families that did this. Essentially, you swine took a country, an entire people, and you broke it, wrecked it. Now you get to reap the wind for that!

If you had invested $10k in aapl on 1/2/98, made no initial investments, it would be worth $501573.30, as of the close yesterday. Calculations from sharebuilder.com “if i had invested” calculator.

It was an interesting trend idea to track, but frankly, to prove fruitful, you’d have to look at more than the Apple name. The iPhone appears to have the greatest support to the article’s little research test, but in my opinion, it was more than a name brand product that made the iPhone successful. The iPhone dove into a new product segment (cell phones) where Apple had not previously swam the waters. The product timing was right in our current culture and the Apple audience paid attention.

There is a strong Apple following of artists, writers, and many right-brain thinking folks. I’d invest in Apple purely for the creative products they create. If I were to bank on high returns, I’d watch for more trend-setting product releases like the iPhone rather than new operating systems.

I’m a little confused. If somebody bought $10K worth of Apple Stock in 1997 and just let it sit until today, it’s not worth $500K.

ex ped: Have you taken account of the splits? There have been two of them since 1997.

Good article Philip, but proof (not that I’m accusing or blaming you) that there’s way too much focus on the “Macworld trade” and far too little on why it just doesn’t matter.

Here’s why it will pay to look Macworld, and ignore the pundits trying to play you for a trade:

http://www.macobserver.com/forums/viewtopic.php?t=61151