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1. Apple Long-Term Position: 1,175 shares x $451.71 = $530,759.25
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THE LIVE BLOG 9:30 AM – 4:00 PM
12:00 AM — We just published a very detailed report on why we believe Apple has capitulated on Friday, why there is a very significant chance that we could see a very big rebound either starting today or tomorrow and why we feel Apple has a very strong chance hitting all-time highs by the time we get to January. The Devil is in the Details, and all of the details are published in the Apple November 2012 Game-Plan.
We’re operating under the assumption that Apple will soon test the $650 level and we will explore our options at that time. Though we do feel there is a very significant likelihood that Apple will test the $680 level which could give us a lot of very good options.
Now one thing that I would like remind everyone about is the fact that we had warned that Apple could test $574 as part of the normal capitulation process. We had noted this multiple times over the past five days. So it shouldn’t have come to some huge surprise to people. Take a look for yourself
Wednesday, October 31, 2012
9:27 AM – As we head into the open I would like to remind everyone that this is only the second day of the quarter. Apple has only traded down into the $590′s for 1-sessions. We could see that happen for several more days. In Q4, Apple tested the $570 level for three days before moving higher. Here, Apple will need to test and re-test its lows on Friday and even potentially get down to test that $574.00 number we are looking for.
Wednesday, October 31, 2012
4:42 PM — Here’s exactly what is going to happen from here. Apple will test the highs in a v-recovery soon. Remember, I want to see $574.00. That puts Apple at a 12.9 P/E ratio.
Monday, October 29, 2012
2:00 PM — At $574 a share, Apple falls under a 13 P/E ratio and trades under its 200-day moving average. Those are two very extreme points for Apple.
Friday, October 26, 2012
12:17 PM — this correction is now on par with previous corrections. Apple has lost $113.20 from its all-time highs which amounts to a 16.1% correction which is close to the size of the May correction spanning $114.00 and 17.7%. It also matches each of the corrections we had in 2011 which ran between 14% and 20% each. The valuation low print for the quarter is at 13.40 which matches last quarter’s P/E low. Notice, however, that a 13.40 P/E low is still relatively high when compared to past quarters overall. With the exception of last quarter, we tend to see that get down to the low 13′s and high 12′s. That’s sort of why we laid out that $574.00 level yesterday after Apple’s results. A $574.00 price level would bring Apple’s P/E ratio down to 12.99 or 13.00 essentially.
Thursday, October 25, 2012
4:40 PM — The TTM has fallen to $44.16. That means at a 13 P/E, Apple’s bottom would be around $574.08. The top-end of the range would be around $684.50. Which again, pretty much means it will test $700. Apple won’t get up to $680 and then stop.
As you can see, if you go all the way back to Apple’s earnings report date, we saw $574 as a very distinct possibility for a capitulation bottom for Apple for multiple reasons. First, it would mean that Apple would lose its 200-day moving average by a very solid degree. Second, it would mean Apple would get down to that 12.99 to 13.01 P/E ratio level. Thirdly, I knew that it would probably mean a 30 RSI on the daily and it would mean a far breach below the lower b-band. I knew we would get all of that with $574 as early as after Apple reported earnings. I then repeated that every day thereafter.
Now the reason I’m pointing this out is because it lends a lot of credibility to the analysis when the analysts pretty much forecasts a capitulation down to $574 as a clear possibility. It’s not like this was unexpected. Hell, we even used the exactly number $574 on how many days? $574 exactly. The lows were $574.75 on Friday. What that should tell you is that things are working as they should. This capitulation that you saw on Friday is real. That’s all I can really. If you are shocked or otherwise surprised by Apple hitting $574 on Friday, then it means you’re just not really following anything I’m saying and you should really reflect on the value you’re getting out of Bullish Cross. If you are not following the analysis, then what’s the point right? Like it’s frustrating for me to read people’s responses — especially those which suggest that it’s surprising or wholly unexpected for Apple to reach $574 even after I drilled it home for 5-days straight. It just makes me feel that the analysis we’re doing here is for nothing. What’s the point? So here it is. I laid it all out for you.
The Apple November 2012 Game-Plan
By the way, Apple did hit a -3M Chaikin Oscillator on the 60M chart as well as a 24.17 RSI on the 60M chart. So it’s not just the daily chart that is extremely oversold. It’s the daily and the 60M both which are at extremes. Normally, what should happen is the short-term 60M chart will result in a $25+ rebound which will turn into a much larger overall rebound as a result of the oversold daily charts. That’s what we have in store early next week. I expect to see $610 by Tuesday afternoon.
2:17 AM – as a complete side-note to everything else that is going on, I’ve been asked quite a bit recently whether it’s worth covering the short side of the spread down here. Well the answer to that question is yes. If you can afford to do so, then covering the short side of any spread down here makes total sense. Why? Because premiums are at their peak lows right now. You will recover your losses much faster and creating a lot more gains if you cover the short side of the $600 -$650, $655 – $705 spread and for those who have them, the $700 – $750 spread. But again, this is if you can afford to do so. I would cover the short side of your spreads down here. I would also recommend getting long the Apple $580 – $600 call-spread for those who still have any cash on the sidelines. Buy the January $580 -$600 and even the $600 – $620 spread is money. Both will close well in the money at expiration. Even buying the $630 – $650 spread would be a pretty solid move down here much like buying the $570 – $590 spread at the lows in May.
9:30 AM — Apple has added anywhere from $10 to $30 the Monday after capitulation. The Monday after closing at a 30 RSI has always lead to +$10 to +$30. Now let me ask you this. Is today’s rally really because of the iPad Mini sales news or is the iPad sales news an excuse to rally Apple as you are seeing? There’s a huge difference. I just spent all weekend laying out why Friday was capitulation and why we would see the stock likely gap-up today.
11:03 AM — By the way, I want to make something very clear. In our analysis, we are not stating that because Apple hit a 30 RSI four times in the past and bottomed all four times means the fifth time it will bottom. We are saying that you should notice that Apple has bottomed at a 30 RSI the last four times. And it’s because of something inherent in Apple reaching oversold conditions. Every so often someone will be quick to point out that the sample sizes are too small to determine anything from the fact that Apple has hit a 30 RSI or fallen to the 200-day moving average or that it has gapped down below the lower b-band.
True. Statistically speaking, it is irrelevant. Even if Apple bottomed at a 30 RSI on the last 9 events, it would still be a pretty small sample size. But what those making this case don’t realize is that the event of falling to a 30 RSI itself — independent of the previous 9 cases — suggests there is an extremely high probability that Apple has bottomed. Why? Because it is extremely oversold. And why does that matter, because market participants — who are the ones doing the buying — accept that to be the case. So why does that matter? Because black boxes and other algos are built on these guidelines.
Take a look at this sell-off for instance. Apple has had about 6-legs down. Each leg down bottomed EXACTLY on the PRECISE HOUR that Apple hit EITHER a -4M Chaikin Oscillator or a 20 RSI on the 60M. We’re talking pretty much the precise hour it has happened. Only once was it delayed. But in each case it lead to a $20+ rebound. Take a look at the chart below:
Now it’s bottoming each time at a -4M Chaikin Oscillator because it did so in the past. And we’re not saying that is the case. We are saying that every stock has a level that is considering the low end of the curve on oversold conditions. For Apple, a -4M ChiOsc seems to be it. That’s why anytime you see Apple get down to this level, it bottoms out.
The probability is high not because of the sample size. It’s high because of the fact that as things go oversold, the chances of the stock rebound increases with each tick lower. A 25 RSI is higher than a 26 RSI which is higher than a 27, 28, 29 and 30. So on and so forth.
What’s more, every day a stock goes down, the chances of the next session being in the green increase significantly. That’s because unlike coin flips or roulette wheels, trading sessions aren’t independent events. They aren’t. What happens in the previous session impacts what happens in the next sessions. 10 coin flips falling heads makes it no more or less likely that the next coin-flip will land tails. It’s 50-50. Apple closing in the red 10-sessions in a row highly impacts the probability of the way Apple closes in the next session.
Now the reason I’m pointing this out is because every few months or so someone wants to get on the issue of sampling, statistical methods and what determines probability. Yet, the huge issue is that we’re working with very fluid material.
Consider this. From a purely statistical point of view, Apple hitting a 30 RSI 3-times in a row and then rocketing higher doesn’t mean much or anything at all if you don’t understand or give color to what it means to be at a 30 RSI. Being at a 30 RSI itself — even if Apple has never been here in the past — would be very significant.
Suppose for example, that Apple fell to a 25 RSI. That’s never happened. We have no past events for this and it would be in unchartered territory. Yet, we would know that it meant that Apple is very likely to bottom just because of our understanding of what Apple being so oversold means. That’s the point here. Also, forget about 30 RSI. You want a bigger sample size, go look at what has happened anytime Apple has closed under a 35 RSI. The sample is radically larger and it has tended to mean a bottom in the vast majority of the cases. The only exceptions being the times Apple slid further to a 30 RSI. And below that, there are zero cases. Maybe there will be one such case. But I can tell you right now that the consequences of that will be pretty significant.
So this analysis is only partially derived from statistics and sampling. The probabilities are high because the events themselves are high probability events. Apple falling to a -4M Chaikin Oscillator makes it extremely likely that Apple will see a huge rebound. And that has nothing to do with the sample of past events. Well it only has a little to do with it. The past events just tells us that this is where the market finds Apple to be too oversold. That’s why it bottoms at -4M and that is why it bounces 20-points each time. That range could change over time or during certain sell-offs. Sometimes it’s very rare to get down to -4 and other times like this sell-off, -4 seems to be a twice-a-week occurrence. Ok. Enough on this topic. But the point is, don’t get too bogged down with the literal meaning of probability or statistical sampling. In the end, it will just distract you from what is important.
11:30 AM – allow me to clarify my earlier point of what to do with the short side of your spreads. When I said if you can afford to do so, you could cover the short side of your spreads, I was talking only about those calls that have completely depreciated in value as a result of the sell-off. So really I’m only talking about January 2013 spreads. For example, if you are holding January $700 – $750 spreads, the $750 calls are probably worthless right? Well what happens if Apple decides to skyrocket, catches a bid and runs all the way into earnings? The stock could end up being at $750 a share by earnings. That is one possibility. It is. I would even say it’s a pretty high possibility in the grand scheme of things. I would put it at 20% or higher. Because that is what would have naturally happened after a correction of this size. Historically, Apple has done that many times.
Ok. So if you are holding worthless $750 calls, get rid of them. The same holds true for the $705 calls. If you have the money to do so, get rid of them. Here’s why. If Apple rebounds up to $680 a share, and if you covered that $705 position, your $655 calls would go to $50+. You would end-up with full value. Hell even at $670 a share, you can imagine those contracts rallying to $50+. So covering the $705 calls could get you to full value. But only if you have cash on the sidelines to do so.
2014 spreads on the other hard aren’t so cheap. So I wouldn’t do that. I would only do this with the January spreads. And I wouldn’t sit there and raise cash by selling other spreads to do this. I would only do this if I had cash on the sidelines. That’s it.
11:42 AM — Well looking at the market’s trading action today, it feels to me as if a Romney victory will bottom the S&P whereas an Obama victory will likely lead to another leg down. Given the set-up, it also feels almost as if the market is expecting Obama to win and that we see some further selling pressure ahead. I think at this point, the S&P has only leg down left in it. It will be interesting to see how this impacts Apple. I think Apple’s action today suggests that it’s going to re-test the low before beginning its rally. Possibly even today.
Notice that when you go back and look at how the May correction ended, it didn’t skyrocket the day after it collapsed. Instead, it had a range-bound session that closed the day flat. It was a black bar session that had Apple in the green by like $0.50. We did see some wide ranges on the day, but it wasn’t the beginning of the rally. It wasn’t until the following session — Monday — where Apple started its rally. That’s why I’ve been sort of suggesting that we could see the start of a rally on Tuesday. We will have to see how things play out. But today’s rebound so far hasn’t even impacted the Chaikin Oscillator which is still very low right now on the daily. It’s at -18.4M. So it tells me that this rebound isn’t real. It’s not the explosive rally that I would be looking for. But we still have more than half of a session to turn that around. I think what we would need to see today is Apple reverse Friday’s losses to form another bullish engulfing candlestick. That would likely spark a big rally from here. But we will need the market’s help for that and right now now we’re seeing things sort of weakening right now. A key point to watch on the SPY/QQQ is Friday’s lows. If the SPY and QQQ could form a sort of double-bottom off of those lows on a re-test during the next hour or so, we could see a set-up that might take Apple up to reverse Friday’s losses.
12:35 PM — what you’re going to want to see today given that the full big recovery is off the table is this. First, Apple can fill the gap and form a doji by closing at $583.50. That’s sort of how we bottomed out in May. That would be fine. Second, we can see a close near Friday’s close. So it would be a black-bar day. That would be fine as well. Especially since the daily Chaikin Oscillator is now at under -20M. That would be a great outcome. Third, you can see Apple reverse off of these levels and close up $20.00. We want to see one of those three outcomes. Anything other than that would not bode well and we will talk about why. Even a red close would be great. Because it would just cause more oversold conditions and put us in the exact same place that we were in on Friday. So that would be fine. It would give Apple a re-due. Here’s a chart which shows Apple at a 21M Chaikin Oscillator:
Here’s Apple’s black-bar on the daily. Compare what you saw in May to today. Notice the deep red bar followed by the black bar followed by the big rebound?
3:20 PM — At this point, I would rather have Apple close near the lows of the day at a 30 RSI and a -20M Chaikin Oscillator. That would probably be best for Apple. Second best would be a close right at the open for a doji. The third best scenario would be a close at the highs. The worst case is not quite a doji, but not at the highs of the day either. A red day would be excellent as well. Closing down on the day would put Apple at the same exact set-up we had on Friday. Even better.
4:01 PM – So the close could have been better. We were about $1.00 off of optimal. We’ve come off overbought conditions on the daily and on the 60M. But we’re still pretty darn depressed overall. Tomorrow will be extremely important obvious. A +$8.00 day is a good start. The most important thing for Apple is to recover the losses as quickly as it put them on. At least when coming off the lows. Apple was at $604 three days ago before today, so it would be good for Apple to close above $603/$604 on Wednesday. That would mean +$20 over the next two trading sessions. Whether that comes via two +$10 days or a +$20 and a flat day doesn’t matter much. We just want to see Apple get up to that $604 area by Wednesday. Then it will have a long ways to go over the ensuing 4-5 days. By Tuesday of next week, it would be ideal for Apple to close near $635. Now if the stock revisits the lows, we will have the same sort of scenario ahead of us. Same sort of outlook. You’re going to want to see a v-type recovery off the lows.
Looking at Andy’s 4:01 PM chart it looks like today formed an inside day which can be used as another piece of evidence or clue as you will to help determine the likelihood of the next move:
Investopedia explains ‘Inside Day’
An inside day is often used to signal indecision because neither the bulls nor the bears are able to send the price beyond the range of the previous day. If an inside day is found at the end of a prolonged downtrend and is located near a level of support, it can be used to signal a bullish shift in trend. Conversely, an inside day found near the end of a prolonged uptrend may suggest that the rally is getting exhausted and is likely to reverse.
Read more: http://www.investopedia.com/terms/i/inside_day.asp#ixzz2BNw81y7B
Nice find! Add another data point to the mountain of evidence of a reversal.
This also made me go and look at the weekly charts. Our past 3 weeks look very similar to the capitulation weeks in Nov, 2011 (7-21 Nov). Capitulation week™ (which could be similar to this one) saw a 5-6% bounce. A 5% bounce off today’s open would be around $610.
That’s a good start. But man, isn’t it crazy that we’re hoping for 610? I remember not too long ago when 666 seemed really bad.
Yeah… I thought the jokes about how everyone hated $666 were funny. I don’t think anyone hates it now…
2 things we miss, one is 666, another is buying island talk. let’s get there again quick!
3M iPad #s were huge guys, over the weekend anyone I talked to had no IDEA Apple is coming out with a mini, they said what? They asked how much I said 329, they all said WHAT? an iPad at 29, I gotta go to the Apple store. Fold don’t look at us and the financial media, I bet only 1 out of 1M average Joe out there knows about iPad mini so far, As they see the ads and see it in use and at the store, this product changes the future of iPad for Apple. And at 43% for the lowest model, Apple will be laughing all the way to the bank at critics after this holiday season.
That’s exactly what I said to a colleague! The people who really knew about the Mini and “hoped” it was real were people like us and die-hard Apple enthusiasts! I don’t think the bulk of the population knew it was coming!
Then why did they only sell 14MM last quarter? I thought one of the reasons given was that many people were waiting for the mini.
I think the number of folks aware of AAPL’s product pipeline is much higher than that. Let’s take a round number like 10% of US consumers, so they’re fairly well tuned in to AAPL’s product rumors. It’s not just on AAPL blogs anymore — it’s on the local TV evening news. So call it 30M people. Many of those are technology enthusiasts, so assume half (15M) of them plan to buy (for the first time or upgrade an older model) an iPad in the next 12 months. 1/3 of them deferring iPad purchases (5M) based on rumors in the September quarter seems about right to me. And that says nothing about tech enthusiasts abroad, who probably deferred another 2-5M purchases. So take 7-10M iPad purchases and move them from September to December quarter. Add in China (iPad mini is better suited to the Asian markets) and I think we can hit 30M iPads this quarter.
Interesting we have over 900,000 Apple shares trading in after hours That is way above normal. Maybe some shorts are starting to cover
so according to Travis Lewis at Applepain, What will happen tomorrow is funds will buy DITM calls<exercise immediately<then sell same call, trying to capture Dividend, so it will mess with the option price. Anyone have thoughts on this?
Yes, it doesn’t matter, don’t waste time on the divi issue.
Isn’t there a risk if you own deep in the money calls that they will be bought?
Go to:
http://nanseninvestments.com
Read the thread dated 1 November on Dividends.
I believe the high risk spreads are those where the short call, has an extrinsic value of less than $2.65. When I looked on Friday, this would have been the $495 January 2013 spread for example.
If you get exercised on the short call, then you exercise the long call. You will get the max spread value – less $2.65 for the dividend. If you let lucky, the dividend on the short call and long call will be a wash!
If the extrinsic value is greater than $2.65, and you are exercised, you should come out ahead.
It can be a positive! You might get lucky and make money by being exercised when the extrinsic value is much greater than $2.65. If so, exercise the long call – and run with the cash!
2013 spread for example = 2013 CALL for example
No that’s not it. We discussed this at length before but I can’t remember the specifics now.
Question for the group about buying back the short leg and tax implications in the US. I assume a BTC on the short completes the trade and at these prices you’d be on the hook for a gain of nearly the full phantom value of the short. Phantom in that the short made a big gain but it all went toward the purchase of the long back when the spread was established. No tangible gain when it was closed. Now if all goes well the close of the long, this year or next, provides the cash to pay the taxes (assuming you haven’t made other plans). But if you wait to close the long until after 12/31, and it never appreciates to be able to cover the taxes of the short in the previous year, you’re screwed right? And the fact that you waited until after 12/31 means any loss from the long can’t offset the phantom gain of the short. Sort of like what can happen with a badly timed wash sale of a spread near the end of the year. Have I got this right? Thanks.
Exnext
I think this is all correct.
I’m not a tax guy or CPA, but that is exactly how I understand it. It really depends on one’s individual situation, but for many of us, I think it is better to leave your existing spreads alone and use your cash to buy more bullish vertical spreads.
Yes. If you close the short leg with a gain, and you have a loss on the long leg, you should close the long leg in the same year so that the loss cancels out the gain of the short leg.
An idea is to sell enough longs at a loss to cancel out the gains on the short positions. Then sell a bull put spread. This should avoid the wash rule, let a few calls rise with the tide, make x dollars on the spread and avoid the horror of locking in the short term gains, paying tax on them, then only to see the congress drive the car off the fiscal cliff. The long calls go no where fast. I would buy the bull but spread at the jan 14 strike not the jan 13 JIC> Don’t think it can’t happen…people who say they will never compromise are often telling the truth.
exNeXT, That’s my understanding as well.
I bought to close short leg of Jan 13 655/705 yesterday and the short leg of Jan 13 650/700 today.
If a sharp rally here, then fine. But if we stagnate between now and 12/31/12 , guess will have to re-consider as we go if I’d rather lock in the loss by selling to close the the remaining leg for 2012 to offset those “gains” , rather than pay taxes on , as you aptly describe, these phantom gains in 2012 and still take the hit of the real loss from a sold or expired second leg in early 2013 .
Also, By knowing the gains from buying back those legs at a cheaper price , I then deducted that amount from the intial cost of the other leg (the bought to open call leg in the initial spreads, ie the 655 and 650, respectively ).
That gives me a value for which I “paid” for those. Plugging that value into the calculator here under ‘price per option’, I can then get a visual of where I need to be in price on any given day from now until Jan Op ex in order to see a gain.
For me, a price point inthe 680-690 range by then should be profitable (slight difference depending on which call I refer to .. the Jan 13 650 vs the Jan 13 655 , since they are at different strikes and bought about a week or so apart during the last 6 weeks). Obviously, could also see a profit much sooner and at a lower price if the rally here in Nov. though. Other main problem I think with this scenario is if there’s continued drop or prolonged sideways action, since time decay is no longer offset as would be with the spread..
If I’m mistaken on any of this, please correct me . These are my first vertical spread trades, so I’d rather not mislead others with any errors in the conclusions I’ve drawn.
tim 1234, I like your idea about the bullput spread as an alternative approach. Will have to read and learn more about that before I try it.
* by “yesterday”, I meant Friday.
here’s the calculator:
http://www.optionsprofitcalculator.com/calculator/long-call.html
Andy,
The 5 day EMA has been resistance for over a month now.
How come you never talk about this indicator when it seems every single technical day trader focuses on this indicator?
There are around 500+ indicators with thousands of variations, so why do you think that must Andy can cover all of them ?
For example simple 5MA with 1 bar offset?
I am not familiar with the one bar offset
By the way, you don’t need to protect Andy. He does a pretty good job himself. Worry about yourself.
I am not protecting him. Each of us uses many different indicators and to point out that Andy did not comment on a specific one that you use, sounds not right to me.
Offset bar means that the MA or any other indicator is moved forward or backward by X bars.
Ok., but why do all these day traders like Fitzpatrick seem to follow the 5 day and 21 day SMA and its been working perfectly. It seems fairly mainstream and plain vanilla and its been working. I am just asking the question.
I was day trader once many, many years ago and I did use them too with many other short term indicators. The thing is that BC is not for day traders. The objective here are long term Apple spreads. The commentary may sounds like for short term traders but it is not intended to be like this.
In regards to the SPY, it is short term (days to week or two) oriented but is is still not for day traders.
calculator is here:
http://www.optionsprofitcalculator.com/calculator/long-call.html
sorry Jack, that was meant for above
I hope Brian Blair is right. He expected $349 pricing for ipad mini, apple priced it at $329. He expects $700 stock price by Dec….hope and pray he is right! He has 4 weeks:-) really want to break even at this point.
http://www.businessweek.com/videos/2012-10-15/blair-apple-shares-topping-700-by-december
Ya me too…..not ready to throw in the towel….but at some point breaking even may be something that we need to strategize about. What we really need now is more buyers…..I just wonder what happens if we don’t get the V recovery….do we transition straight into the November doldrums and stay here under $600 till after thanksgiving?
i am holding Jan positions similar to BC portfolio. Plan to hold them until we rebound a little, hopefully , the rebound started today. If we do, i will roll them up to Jan 14…unless there is a big upswing which is possible after the election cycle is over. No plans to move Jan positions into Nov or Dec 2012. Too RISKY IMO.
What’s his track record? I liked his interview…quite balanced…
The Bullish Cross model portfolio has an error on the bid price for the $600-$650 Spread. It is a about $14.15 today, likely $13 yesterday. It is showing $17? for Nov 2nd update.
I think it updates once every week or two? I’m not sure. Andy has said something like this in the past.
I have an idea which could arguably be the stupidist thing to ever come to my little mind. It occured to me that my current paper loss in Apple spreads could be quite useful as a real loss during this calendar year for various reasons; however, I am 100% on board with Andy’s theory that we get back to $650 and possibly even $680 if not higher sometime between the next few weeks and the Jan earnings announcement. I did some quick calculations and if I were to sell all my Jan spreads and purchase the 625-675 with the proceeds (a spread I do not own today which I believe is the key point for dealing with the wash rules) I could achieve the same ultimate payout that I would have gained assuming Apple gets back to the high 600s. Am I smoking crack or is this really a viable method of getting the benefits of a tax loss this year, while preserving my ability to gain from an Apple rally. I’m sure I am missing some key point here. Of course if we do see a gain but are forced to sell in December for some reason that outcome would make this idea less attractive or even useless. Thoughts?
To realize the loss you have to wait 30 days to buy your new position.
I don’t think that is clearly true. If you look on the first page of comments, there is a link to a discussion from Jan. This is pretty clearly a grey area in the tax code and an area of disagreement.
I’m an attorney, but not a tax one, and here is my interpretation. If it looks like you are selling spreads at a loss and rebuying similar ones just to realize a gain, then the IRS might come after you later if you’re audited.
The way around this is to have some valid justification of why you sold and bought a different strike. In your case you’re buying a lower spread to reduce risk. I think that is a defensible argument. Further aiding your case would be buying a different month entirely.
But I think you’re ok just changing the spread to substantially lower strikes. I don’t think you’ll have wash sale problems here.
If you buy or sell the same strike, they’re clearly subject to the wash sales rules.
If it were me, I would be sure to have on file correspondences to a third party indicating my intention to purchase a lower priced spread for the purpose of reducing risk. In the event of an audit, this would help your case by demonstrating intent.
Just a brief comment on Wash Sale rules for those in the US……. I have spoken to some CPA’s including a tax partner at a Big Four firm. They took a dim view of buying different spreads within the 31 day period. Basically it is not so much that it is ok, as much as it is you can most likely get away with it. That may be a distinction without a difference but keep it in mind.
I disagree for a simple reason – it would prohibit you from recognizing losses on any Apple options. If you sell the Jan 655-705, you couldn’t buy the Jan 625-675, the Feb 700-800 or the Jan 14 900-1000 etc etc etc. without implicating the wash sale rules.
I believe the IRS would only care if you used the same strikes, or obviously were just avoiding taxes with no legitimate reason for buying and selling (e.g. shifting the Jan 655-705 to the Jan 650-700)
this fells like the parabolic rally but inverse , never ending …. never ending….
Every day that this drags on like this will test our patience even more…I have stopped looking at my acct value…hope I can check back in around 635 next week or better yet, late this week…
yeah, but remember that Andy did say this might take a few days to start and add an election and a market that’s in fear mode till that gets cleared up (plus a very all important vote on the greek deal wednesday morning in europe) and i for one am not even thinking about it till Wednesday. I’m turning off the laptop and getting people to the polls tomorrow. Have faith.
Same here. I’ve stopped caring about the numbers.
Tomorrow, though. Tomorrow looks different… doesn’t it?
Tomorrow, and tomorrow, and tomorrow … I’m reminded of a certain Shakespeare tragedy.
the parabolic rally ended, and so will this!! there is no doubt apple is going to rally back to 700+, its the Jan expiration that is causing anxiety. Todays action was pretty good to start. All we need is a string of good news and we will start seeing multiple green days. The best part is that we are in the holiday quarter. As long as there are no further production rumors, and the analysts can report supply is good, we will be at $700 by Dec first week. We just need the sentiment to turn positive soon! Tomorrow is the 29th day!!
With the election and the race virtually tied also add in Sandy and the slowly unfolding story of new York getting back to ‘normal’, I don’t think the markets know what to do. Right now I doubt there will be big moves, now is more like wait and see. Give it a week. Taxis and rail service are returning to normal, gas and electricity are to slowly follow sometime this week. The city is coming back albeit slowly. Cobra is seeing a market he can’t call. That’s saying something! These things take time.
Here’s a question for Andy or the more advanced members: anyone know if I could get trading data (of any timeframe, but preferably hourly and daily) in a logarithmic scale instead of linear?
Never mind, I see most charts are already logarithmic. I didn’t know that! That’s pretty neat.
Sometimes it is worth looking back in time to see what lessons one can learn. Without that, we’re bound to repeat our mistakes.
This is probably a painful time for new BC subs. New BC subs are the least likely to post, so here is what I think is their experience, starting with this post by Andy on Sept 24th:
———————
Extremely Important Update: Time to Buy for those who have Cash
I wouldn’t bother buying the assets that are held in that portfolio. Instead, if I was in cash right now, I would be targeting the $655 – $705 spread at $25.00. They’re sitting at $25.50 right now. Why $25? Because that’s a clean double on Apple having to close above $705 in January. So freaking worth it. If I were a new subscribing looking to follow the BC Apple Model, I would consider buying the $655 – $705 all the way up to $26.00 even. Just go in that direction. Forget about the $600 – $650. That ship sailed.
That’s how I would do it. It’s very simple and easy to screw up. Don’t overthink this. It’s so obvious. The advantage of buying the $655 – $705 is you can double your money this January, and then move that capital into the 2014 spreads come January.
2:00 PM — Ok. I cannot stress this enough. If you’re a new sub, you have absolutely no excuse to not be in Apple now and to be following our model. The $655 – $705 spread is at $26.10. That’s a buy right at the ask for anyone looking to participate in this. You can get in this right now.
Don’t dither here. Just do it so I don’t have to deal with the whole, “what do we do if we’re sitting in cash” questions every five minutes. You have your chance right now. Apple rarely gets this oversold on a short-term basis. I wouldn’t be surprised to see $700 very soon again.
———————
Today, the $655 – $705 spread is trading for $5.45.
Even if you are not a new BC sub, I suggest reading the entire Live thread for that day. There is a lot to reflect and learn from.
BC Live 281
The comments as well worth a read as well. See this prescient post:
adave | September 24, 2012 at 12:48 pm | Reply
For those buying longer timeframe options today, keep in mind we’re still looking for a larger intermediate style decline sometime yet this year. If we look at the low P/E each quarter recently, we have:
Low P/E the last 4 quarters were: 13.1, 12.6, 12.7, 13.4
With the expected TTM earnings after the October report, those previous low P/E levels would result in an expected stock price low between here and the end of the year of: 600, 578, 582, 614.
So I think we shouldn’t be surprised if AAPL were to go down to those price levels. That’s what it’s done for the past four quarters.
Good post…many of us long time subs deployed additional cash that day as well. Very bad timing…
WoW! “adave” had this nailed on Sep 24 and we were engulfed in greed….confident, arrogant that apple will never go down below $650…and here we are 6 weeks later…fukced up with drawdowns. have no one else to blame but ourselves. if only we had this studied up and learnt. hopefully adave got out in time. Any further advise “adave”???
i bought that day too. and frankly, no offense, I thought, in hindsight, it was Andy’s arrogance– not “ours.” I had never seen him so “confident” and forward. Maybe there had been a reason for that.
What I don’t fully understand is why Andy would have had such conviction given bth the high p/e and the fact that we were not oversold on the daily RSI. It just doesn’t mak
I remember at that time, technical analyses indicated that upside risks outweighed downside risks. I think many people expected a correction, but just didn’t expect it to be this severe. If you read Adave’s post from this morning, he mentioned that there were only 3 other times when AAPL was down 6 weeks in a row. They were 2000 (dot com bubble), 2006 (change from Intel), and 2008 (the financial crisis) – all three were pretty big events. I don’t remember the conclusion from that post, but he seems to suggest there is something curious about this correction, aside from the stock wanting to come down in PE.
I think when the dust is settled and we are in a better position for academic discussions, this correction will be a very interesting case study. Meanwhile, as an investor, the best lesson I take away from this is to always hedge for both downside and upside risk, no matter how strong the technical indicators are.
thanks for posting crosstrade.
thanks crosstrade. that was Day 1 here for me . and trade 1. picked up the 655/705 at that time. Bought back the 705 leg last week. Will let you know how it pans out.
Not freaking out or anything. found it funny that you just nailed the timing in terms of my experience here.
I suppose , in hindsight, I might have analyzed adave’s post and point better before committing the cash. Live and learn.
also have to go back and review why I bot spreads when Apple at 650′s, 640′s and 590′s. can’t just be a follower. have accountability to myself only for trying to catch the falling knife. I should know better from past experience.
made plenty on well timed long calls earlier this year. ( had converted to all cash mid -Sept, when Apple sitting near highs). Those gains (plus some) helping pay for my education this past month. Very curious to see how it all unfolds. GL to all
For the sake of new subscribers, I’m sure Andy will figure out a way to help them make up to this.
Thanks for posting this.
I once practiced a simple rule of booking a profit any time I was up >20% on any trade. I think it is worth going back to that.
5 trades x 20% per year is more likely to work out than 1 trade x 100%.
Hind sight…..
i used that too! however, following BC i figured AZ had better skills on calling the price…i had made 80% profit and was looking for another 120%, now i am down 80% and it HURTS. I m trying to look at the positives, Andy’s technical analys is top class we now need the fundamentals to show up and improve market sentiment ASAP!
the sad thing about it is how did a single random BC member call a typical correction down to 13 P/E while we were buying far higher and not selling anything?
How can he tell us that AAPL corrects to a 13 P/E each qtr and us never have realized it……
if anything, we need to get better about when to buy (a simple rule at 12.7-13.5 p/e) and when to sell (above 15-15.5+). All this talk about mechanical trading did nothing for us, calling and buying spreadsnear the low early in may (taking a temporary 25% drawdown to the bottom which was another freakout session) did nothing for us now that we are down here so many months later.
and if anything buy conservative spreads or be far far more vilgilant as you enter the qtr where your spreads opex. the whole coma mode and sleep thing is gone, you need to be a active trader as you head into opex qtr based on the above rules unless you have easy conservative spreads which you remain fully confident in during a potential drawdown (like a 555-605 or 600-650 spread).
You also need to read Andy’s posts in context. Andy was not implying for anyone to go 100% into 655-705 spreads at that point. He never goes all in on one purchase. For new subs he was probably recommending 1/5 to 1/3 of planned AAPL allocation.
I feel like any new subs should actually be forced to learn a tutorial on Risk Management, and pass a written test, before being allowed to read any of the rest of Andy’s material.
Very good point.
Well, I don’t understand where the 1/5 or 1/3 comes from. I would unfortunately rather take it as the same ratio as the bc portfolio. Or even more as 600-650 was now totally out of the picture.
AZ – looks like we need another “freakouts about January spreads” counter
Here’s my chart of PE/TTM Earnings Trend for anyone interested:
http://i111.photobucket.com/albums/n158/jdrobins2000/BullishCross/Screenshot2012-11-05at70503PM.png
Keep in mind, the scale is logarithmic, and the trend lines are exponential, which assumes Apple continues to grow earnings at an exponential pace through 2014, and PE contracts at a exponential pace.
Andy’s forward earnings estimates are lower than the exponential trend line, but his PE expectations are higher. The result is his price estimates seem to be about on par with trend of the PE x Earnings estimates. This seems to add up for me, as continued exponential earnings growth only serves to further compress the PE ratio, so slowed earnings growth may allow the PE compression to slow or stop. However, I am concerned about the potential for PE to continue downward regardless.
I have another chart I am working on now, based on long term trend lines, one of which is that line for price = PE x E trend. Here’s what I have so far.
http://i111.photobucket.com/albums/n158/jdrobins2000/Screenshot2012-11-06at12230AM.png
Frankly, it looks like we are in a perilous position here. We are at that trend line based on PE and E trend, which was at the center of a channel which AAPL has traded within since July 2009 except for briefly during the two big push ups in March and September of this year. We just fell below the center line, and the lower bound is at about 530, a PE ratio of 12, right about at the lower bound of the light blue range on my PE chart. This would be a full retrace of the gains since May. Alternatively, we could bounce here immediately and head back toward the upper bound, which will sit at about 720 in january, a 16.3 PE ratio until earnings is reported. Let’s hope it’s rally time.
One more interesting thing I noticed, is we have had six red weekly bars in a row. We have not had that since July and September of 2008. In AAPL’s full history, it has had mixed results afterward, with some preceding a full meltdown, and others preceding an immediate or delayed large rally. However, it does indicate this correction is potentially different from recent ones. At least if this occurs, we will have a decent amount of time to recover before Jan expiration, and I believe it would result in a strong rally.
Good luck to all. Let me know if you have any thoughts or questions. Thanks.
Version 2.0 of the price trend chart with 6 red bar study. Very interesting, noticed they often occur after breach of a large multi-year uptrend (which we just had, incidentally). I added those uptrends in purple.
http://s111.photobucket.com/albums/n158/jdrobins2000/BullishCross/?action=view¤t=Screenshot2012-11-06at21506AM.png
Hey jrob. Very nice analysis you’ve done here. Since the plot is done on log scale, it’s a bit difficult to translate. Would you mind telling me what the PE translates to in real-terms, at the end of your projection period, say Oct 2014? Many thanks.
PE trend is about 11 in Oct14. Reading the y axis is easy once you understand it. See the 2 on the left? Every increment above that in the grid is 2 more, so 4,6,8… up to 20. Then, every increment above 20 is 20 more, but we don’t really care about those. The odd increments are a little higher than the midpoint between the even increments. Wish I could get excel to label those smaller increments, but don’t see how.
Ughhh, new links to charts below. Photobucket won’t show full size images anymore.
https://docs.google.com/open?id=0BzIDYlIRBFpNMHJNMTNraThtejA
https://docs.google.com/open?id=0BzIDYlIRBFpNTkU3TGNSSlRmVmc
Adave posted this morning (5 Nov, 12:53pm) that there were 3 other occasions when AAPL was down for 6 weeks in a row: 2000 (dot com bubble), 2006 (switch from Intel), 2008 (financial crisis) – all three were special circumstances. So this correction is curious because there isn’t really any special external events in the broader market, or at least nothing of the magnitude of the dot com bubble or the financial crisis. I thought this was a very interesting observation.
Oh wow thanks, guess I missed it. I wish I could read all the comments like I used to, but I got burnt out. Adave has some really good insights.
Anyone knows what happened to Rochdale Securities? Was Apple rappidly rising and then sliding due to this firm buying and then being forced to sell?
http://online.wsj.com/article/SB10001424052970203707604578097512990315442.html?mod=googlenews_wsj
Looks like it bought 1000x more shares than requested, and still hold them. “Rochdale is in advanced talks with potential investors to save the private brokerage”. What impact will this news have on tomorrow’s trading?
It bought around Oct 25, so it was not the cause for recent AAPL rise and fall.
http://www.bloomberg.com/news/2012-11-05/rochdale-said-to-be-in-advanced-rescue-talks-after-apple-trades.html
But this may put a psychological resistence for the stock to overcome.
Looks like this news was out last Friday, which might be a catalyst for Friday’s captulation.
Here is the link
http://blogs.barrons.com/techtraderdaily/2012/11/02/aapl-rochdale-securities-needs-capital-after-errant-apple-trade-says-bloomberg/
Nick Nansen’ s new article
Pause For An Election
http://nanseninvestments.com/2012/11/05/pause-for-an-election/