Buy Apple Puts Today as Hedge, Morgan Stanley Says
July 21 (Bloomberg) -- Apple Inc. shareholders should buy bearish options in case the iPhone maker gives a "conservative" forecast after the close of trading today, Morgan Stanley said.
Investors should purchase August $145 puts, which were unchanged at $3.75 today, Morgan Stanley derivatives strategist Karl Debahy wrote in a note today before the open of U.S. exchanges. Apple shares slipped 0.9 percent to $151.51, giving it a 2009 gain of 78 percent.
Apple may give a conservative projection for gross margins, or profit after deducting the cost of products and services, the options strategists wrote, citing stock analyst Kathryn Huberty. She has an “overweight” rating on the shares, and would buy them if they decline after Apple releases results today.
“The key debate coming out of the conference call will likely surround management’s gross margin guidance,” the strategists wrote. “The company is typically conservative on the September quarter gross margin outlook given unannounced new products that launch in the quarter and uncertainty around strength and mix of back-to-school sales.”
Cupertino, California-based Apple is scheduled to report third-quarter results today after the close of U.S. exchanges. Analysts estimate profit excluding some items of $1.17 a share, the average of 32 estimates in a Bloomberg survey.
Overnight Trade
Birinyi Associates Inc. recommended buying Apple shares today at 5:45 p.m. New York time and selling them tomorrow at 8:30 a.m. The trade has a 78 percent probability of a 1 percent return, Cleve Rueckert, an analyst for the Westport, Connecticut-based research and money management firm founded by Laszlo Birinyi, wrote in a note.
After the stock gains on a positive earnings report, those gains tend to continue until U.S. exchanges open the following day, Rueckert wrote. When the shares fall on a negative report, the initial decline is often followed by a “tradable bounce,” he said in a report to clients.
“The stock is generally flat after the open following earnings, it declines 65 percent of the time for an average loss of 0.02 percent,” Rueckert wrote.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aIyJX9me3bos
July 21st, 2009 - 16:44
Thanks for writing, I really liked that post, wish you would post more often
September 3rd, 2009 - 22:05
LoL lemme guess MS wrote the naked puts and fleeced more bagholders. those puts expired worthless and it really wasn’t that hard to see in july LoL.
September 9th, 2009 - 15:08
It is true that those puts expired worthless, but the key is to sell before they expire since all options are time-valued. Usually, when Apple releases its earnings, the next day it would drop by a significant amount because they always give conservative guidance. However, this time it is different. They beat earnings and they entered a deal with China Unicom to sell iPhones in China. They are also building up investors confidence by developing the new tablet, which won’t be released until year 2010.
The future of Apple seems bright, but people put too much expectations on the tablet. Another concern is Steve Jobs’ health issues. Any “news” regarding this will cause the stock to fall hard. Also, if the tablet falls short of expectations or if they keep pushing back the release date of the tablet, Apple will drop as well.