Is it the season to be picking Apples?

Is it the season to be picking Apples?

Is it the season to be picking Apples?

The upcoming release of the iPhone 6 has investors accumulating shares in Apple Inc on the expectation that the next revolution for the industry leading company is just around the corner. Apple has been a driving force in the development of software and personal devices since the 1980’s, but was predominant in the evolution of the personal computer long before the first iPod reached the shelves.

Apple computers have revolutionised our way of life. They helped bring to market the mouse for the personal computer, a windows interface, digital music, smart phones, and tablets. Would any of these products have existed if it weren’t for Apple? Possibly. But would they be the types of products we see today? Probably not. We can thank Steve Jobs for his foresight for the evolution.

The Early Days

I first started trading Apple shares for clients in the early 2000’s. The share price was trading around the $30 mark, but almost annually, the company was splitting its stock as the continued drive upwards would push the price above $100 per share. Earlier in 2014, Apple Inc. (NASDAQ:AAPL) was trading near $700 per share before a 7 for 1 share split in June 2014. As at the 13th August 2014, Apple shares were trading at $97.24.

Earlier in the week we released a recommendation to Buy Apple Inc. (NASDAQ:AAPL) shares for a Covered Call strategy, and to enter into a Call Diagonal spread strategy using exchange traded options. This latter strategy uses the leverage of options to benefit from an increase in the underlying share price, but also to reduce the cost of the trade by selling shorter dated higher strike options. Of course, a 2 leg option strategy has its own Risks other than the risk of the share price declining, such as Time Decay and changes in Volatility.

Where we see Apple going

Our view for Apple is that following the consolidation earlier in the year, the potential for the share price to continue rising in the current trend has a good story behind it. The company has already announced that they will be releasing the latest version of the iPhone on the 9th of September. This much anticipated upgrade has the potential to help leapfrog the Apple device ahead of its competition.

At the same time, the industry for wearable technology is also heating up. Google has working versions of their “Glass” product in the market, while Samsung has already released ‘Smart Watches’. There is much anticipation for Apple to release a Smart Watch or something similar in the months ahead.

Steve Jobs legacy not over yet

The legacy of Steve Jobs is still influencing the products that are under development in the dark depths of Apples’ secretive research and development department. Under Steve Jobs name, there are over 300 trademarked patents. Many of these are unlikely to see the light of day, but there is no doubting that the current products planned for release will still have Jobs finger print all over them.

Competition

Samsung has released the Galaxy Alpha this week, their latest phone in the series. The Galaxy range has a larger screen size than the current iPhone. But the pros and cons of a larger screen have actually seen Samsung release the Galaxy S5 mini, catering for those who like to use mobile devices one-handed.

Competing with Apple in quality is hard. Especially as most of the newer smart phone developers have kept costs low using plastic products. But the new Galaxy Alpha has followed the iPhone material lead, using a high quality metal frame. For the first time, Apple have a real competitor.

But rest assured, we have no doubt that Apple are ahead of the game. The introduction of the iPhone 5s in 2013 has seen new technology such as finger print identity, bigger and better micro-chips for processing and imagery, as well as the latest operating system. What could the upcoming version 6 include?

First of all, screen size – to match the Samsung Galaxy Alpha. Materials used for the glass may also change, along with updates to the internal components to increase speed, and to operate new features and software. All very exciting for any layman apple user.

What does this mean for Apple’s share price?

There are good reasons for the share price to continue rising. Upcoming product launch, improving sales in Asia, positive sentiment towards the company and its’ profitability. But that doesn’t necessarily mean the share price will continue upwards. The broader stock market might begin retracing, and in that scenario, most companies start to retrace no matter how fundamentally strong they are.

Our Strategy

We have adopted a Covered Call and Call Diagonal spread approach for exposure on this stock. Both of these strategies involve using exchange traded options. The strategies benefit from Time Decay, a mild rise in the underlying share price, and a contraction in Implied Volatility. These strategies reduce Risk, in comparison to merely holding stock on their own, which means a mild decline in share price will have less impact as a percentage loss. However, should the share price rise sharply, the potential gain in the trades are limited.

No-one knows what the share price will do in the future. The adoption of strategies that benefit from sideways to mildly upwards price direction support our fundamental view of the stock. To counteract a decline in stock price, we have exit strategies to manage the positions.

If you would like to know more about trading Apple Inc. (NASDAQ:AAPL) on the US markets, you can contact us by clicking here.

Since 1998, Matthew has been involved in the Financial Services industry providing stock, option and CFD advisory services, trading advice, funds management and education services. Matt is an Authorised Representative of Halifax Investment Services, providing analysis and recommendations for trading Covered Calls in the US markets and using Exchange Traded Funds (ETFs) ...
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