发信人: eric717 (eric), 信区: Stock标 题: Apple Trading From 90 to 200 - Lessons Learned发信站: BBS 未名空间站 (Wed Jan 2 23:21:53 2008)

I closed out all my January Apple options at the opening this morning including 500 Jan 150 calls and 200 Jan 180 and Jan 200 calls as planned to delay tax payment to this year. In addition I closed all my Jan 100 and Jan 130 RIMM calls. All of them made money except Jan 130 RIMM call, which lost about 80% of value. 2007 has been a wonderful year to me and it surpasses myprevious record year 1999 in terms of percentage gain when I rode YHOO and CMGI options to my first 1 million. I traded my call Apple positions three times and Apple alone is more than a 10 bagger for me. I would like to take this opportunity to look back my trading using Apple as an example and discuss the lessons learned. Most of them can be applied to general stock investment.

I have been trading my core Apple options three times this year. First on the week of Iphone announcement, I bought Jan 120 call when the stock is in 90s and sold all my position on the first day of Iphone sale in June when Apple reaches high 120s. I reentered the position of Jan 150 call the next week and sold them when Apple reaches high 140s. The last set of Jan 150, 180 and 200 calls entered mostly in August crash and I added some positions in November when Apple dropped to 170. I will discuss in detail the rationalof how decisions were made for each round of trades and some strategies I used.

To understand my trading style you have to be aware of the compliance restrictions on my trading. I have to wait xx days after submitting a trade request to execute trades. In another word I have to be able to predict whatwill happen xx days before, which is almost impossible. For all three rounds of enter and exit my positions, round one buy and sell, round two buyand round three sell can be planned ahead of time since we all know the events before they announce. In terms of timing on round two sell and round three buy I have to admit I am a little bit lucky. Due to this trading restriction I can only make intermediate to long term trades. So far the total compensation package I got from my current firm still worth this sacrifice.

First topic I want to discuss is related with the use of FA and TA in trading. For me FA will decide which stock I play. In Apple’s case, after doing intensive research on Iphone I am convinced that it will be a breakthrough product and will have huge impact on its earnings in next couple of years. I missed stock run-up on iPod launch and I am not going to miss this time again. That’s the reason I entered my initial Jan 120 call. But it doesn’t mean stocks with strong fundamentals will go straight up. Quite often it may get overbought on momentum and get ahead of itself. Underthis scenario, TA can help you make sell decisions. Personally I like to use the following TA indicators to predict the direction of the overall market: index put/call ratio, NYSE and NASD overbought/oversold oscillator and VIX. In my case I want to capture macro-cycle of market movement insteadof micro-cycle movement and combine that with TA of individual stock to make decisions. This is partly due to my trading style and partly due to my believing that no one can predict each small movement accurately as I see first-hand example of many professional traders over the years. Conversely we can also make buy decisions on individual stock with strong fundamentals when overall market is oversold. In general it’s a good bet in the past forme the stock reaches bottom if it has a big reversal day with huge volume, down big at open and come back gradually and close in positive. The stock like Apple with strong FA and momentum usually bottoms before overall marketbottom out and rebounds before overall market start recovery. There are twoways to buy, some people want to confirm it’s already bottomed out and on the rise or you decide the price is good enough to pick up the shares even if it may have more downside to go. Too often people are either scared to buy and always try to pick up the exact low which is impossible. In case of Apple, if you believe it will reach 200 by the end of the year in November crash, pick up shares at 170 is not bad at all. That’s exactly what I am doing when I entered some Jan 180 calls when the stock is around 170. The sign of recovery I use to judge is if the stock keep making higher high and higher low with increasing volume.

Second topic I want to discuss is how to take advantage of being a small investor. Buy and hold strategy for a stock like Apple is fine as long as fundamental are not change and you don’t have much time to follow the market. For small investors if you have time to follow the market and are good at it you should take advantage of quickness and flexibility. In the word of Deporre, noted stock market investor and writer for realmoney.com, the key of maximizing assets is shark investing – protecting capital while aggressively pursuing profits. I would recommend you to read his book ‘Invest Like a Shark’. As long as you can capture each macro-cycle movement over the year (usually there are three or four of them) in long or short side or both you will make good amount of money. Obviously some people can even capture most of micro-cycles like PSP in this board but it’s very difficult to do that for most of people. I would suggest being good at trading on large movement first.

Third topic I want to discuss is about trading options. I have written one articles in the past to emphasize risk management. It’s so important and I can emphasize enough. In November crash my 500 Jan 150 call lose value of 1 million in a week (option price dropped from 40 to 20 when stock drop from 190s to 160s). The reason I am not panic is first I used the gains I made early of the year on APPLE and FXI, LFC to open this position and second I opened position in a relatively low price (6-7). What I emphasize here is two things: first only use the money you can lose to play the options; second if you miss the entry points don’t try to chase it just wait until next opportunity. Another thing I want to emphasize again is that you don’tput a lot of money to play short-term options. Only open the positions three-or four money down the road or even longer. In this way if something unexpected happens you still have time to recovery.

Fourth topic is about FX option trading. I allocated small part of my capital to trade FX options. In FX trading the margin can be as high as 200:1. I made some long term bet on USD/EUR, USD/CAD and USD/JPY move and it’s quite rewarding. If you have time and money you can consider to trade small capital on different asset class not just stocks. Obviously you have to knowwhat you are doing.

Some predictions for 2008, it will be a roller coaster. I am considering thefollowing stocks to trade: AAPL, RIMM. AMZN, CME, MA, FSLR and PCLN so far. It could be in long side or short side. In terms of Apple, here’s my prediction: I don’t think it will drop significantly from here giving MAC conference and Jan earnings. Any significant drop is a chance to pick up shares and sell on the day before MAC conference announcement. I think it will drop like the past couple of years after announcement. I would pick up the shares and sell after earnings announcement. I think significant correction will not happen after earnings run-up. I opened some April 210 calls today to play this event. In terms of Apple price for 2008 I think it will have the chance to reach 250-300 range considering ultra-thin notebook and 3G Iphone release. I may be wrong. Trade at your own risk.

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