January 17, 2007

Options on the optics of options

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Yesterday I shorted Apple stock by spread-betting long on $95 July puts with July at $98. I write this on a brand new Blackbook, recently added to my other 5 Macs. I love the idea of the iPhone and I am pretty sure that OS X (or its Unix based descendant) will displace Windows.

I used options, despite the high price of implied volatility, to be consistent with my rule of guaranteed stop-loss taking. I may very well be very wrong given that I'm trying to call the zenith of a rocket. I don't usually try to stop rockets or catch falling knives when I gamble in stocks or commodities, but this time there's something urgent in my thinking - Steve Jobs may be in deep doo-doo over the Apple options shenanigans. The optics of the story are awful - backdated options grants, fictitious board meetings, Apple apparently lying outright to say that Jobs derived no value from the operation - but the market wants Jobs to get away with it (so do I in my heart) because he's so admirable and there's so much money riding on Apple. So, if I'm right, the market is thinking egosyntonically and I, working with fingerspitzengefuhl + wit, will profit by sidestepping my own bias.

Oh, and a hell of a lot of good news is already in the price.

We'll see.

UPDATE: Apple stock fell 2.5% yesterday (good). After the close Apple announced spectacular Q4 figures, way ahead of expectations. The stock rose 5% in after hours trading (bad), then dropped back (good). Today's action will be interesting. Should the stock fail to surge or even close lower, that would be a classically significant repudiation of bull news (good). Should the stock do well, that would be normal and it will take a while to see what shakes out.

I remain an Apple fan, but not a fan of the stock price here and now. The undervalued bear factor is Jobs's vulnerability. The undervalued, but longer term bull factor is that Apple's Operating System will displace Windows.


UPDATE 2: It was an interesting day. Apple stock fell by over 6%.

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