**UPDATE March 20, 2015** Nailed it!!!
Tomorrow, during Apple’s event, dubbed “Spring Forward,” Apple’s stock will flash crash. Within a few seconds, it will fall by a dollar and more, and then it will keep dropping for some time, before recovering minutes after the event.
Use that little crash to buy Apple shares or, better yet, options.
The event in question will happen tomorrow morning, March 9th, 2015, at 10AM PT or 1PM ET. Here’s how the event is going to go:
10:00 AM PT: Video introduction: some kind of ad you will never see again in your lifetime.
10:02 AM: Tim Cook on stage, will thank a lot of people for a lot of things.
10:05 AM: An update on the sales in the most recent quarter. “The iPhone 6 and 6 plus have broken all sales record…”
10:08 AM: “In October last year, we officially launched Apple Pay and it has so far been a tremendous success, with over 100 major retailers officially accepting it within a month of its release.”
10:12 AM: Some update on developers and programs and Swift and what not
10:15 AM: Official announcement of new MacBook Air/Pros/etc. Prices, delivery dates, environmental certifications, etc.
10:25 AM: At long last, the Apple Watch will be officially presented
I won’t lie: as an Apple fan and Apple investor, I like the new MacBooks at all, but the Apple Watch is pretty much the reason I’m so excited. Because I know that no matter what Apple announce, the stock will crash, creating an interesting trading opportunity.
Make no mistake: there’s absolutely no way Apple could announce anything that would satisfy shareholders and cause the share to spike up. Apple could announce their new watches cures cancer and make people immortal and the stock will still go down.
Because that’s how it is. Apple’s share price always goes down during events. I’ve watched every single event live during the last 5 years and every single time, the stock has shot down. The phenomenon has been even worse during major product announcements: iPad, iPhone 5, new Mac Pros, , iPhone6 and 6, etc.
It’s hard to explain, but here is how it will go
10:26 AM: Tim Cook goes back on the history of the Apple Watch. “In September, we officially announced…”
10:28 AM: New ad for the Apple Watch. Shows people running, doing jumping jack, but also answering calls and texts, etc.
10:31 AM: Presentation of the Apple Watch. Tim Cook shows them on stage.
10:33 AM: All models are introduced on screen. “Edition comes in 18 carats gold blah blah blah”
10:40 AM: “To tell you all about the new Apple Watch and what it can do, I would like to invite Craig…”
10:42 AM: “It’s such a pleasure to be working at Apple. The new Apple Watch has this and this and that.”
10:50 AM: Tim Cook back on stage. Talks battery life, compatibility, storage size and, at last, pricing.
10:55 AM: Tim Cook talks availability. Now, the event is nearing its end.
This is around where the flash crash should happen. Investors will think, “That’s it? I expected them to announce a $100 per share special dividend!” or I don’t know what, and the stock will start going down, quickly. I remember once, watching it live, Eddy Cue was presenting the new interface on iOS 8 and we could see stock quotes. One of them was Apple, and it went from -0.50% to -1.00% within seconds. He promptly closed the window.
I long wondered why that kind of trading pattern happened. After all, if it’s so easy to predict, everyone should be doing it, right? I mean, it’s not like the Apple Watch’s release hasn’t been anticipated months in advance. People pretty much know what it’s going to be, so why that reaction?
One of the reasons it happens, I believe, is that investors are still hoping Apple will announce some kind of super secret product that will be highly profitable. I mean, for Wall Street, having not one, but four super profitable product lines (iPhones, iPad, MacBooks and iTunes) is not enough: they still expect a miracle announcement for I-don’t-know-what at the end of it.
Perhaps those who will sell their stock tomorrow, causing the stock to lose 1% or more of its value within milliseconds (we are talking about $6 billion dollars vanishing here), perhaps expect Apple to announce an Apple TV, an Apple Car, or an Apple TVCar. It’s not going to happen. Apple will announce new Macbook and Apple Watch, that’s it. And that’s enough.
11:02 AM: Tim Cook ends his speech about the Apple Watch on a good note. “There’s an Apple Watch for everyone out there.” The crash continues. Time to buy!
11:05 AM: Another Apple Watch commercial. The stock is stabilizing. Still time to buy.
11:08 AM: Closing words from Tim Cook, along with an invitation to developers. Small recovery in stock price. Still time to buy.
11:12 AM: End of the event. Closing music, people getting up from their chairs. Stock has recovered 0.50% or so from its low. A little late to buy.
Here you go. That’s how the event will go.
The good news: the stock will recover from that flash crash quickly
It always does, trust me. Even if Apple loses 2% of its value tomorrow during the event, it will recover that - and then some - in the weeks that follows. It always does, and it always will because Apple is the best company in the Universe (at least in our dimension). I’ve seen Apple crash by 3% during one of those events, only to recover it all by the end of the trading day, and then gain another 5% by the week’s end.
Trust me: Apple always recover and, with that kind of mini-crash, much faster that one might expect.
The Apple Watch will be massively successful
Apple isn’t the first to announce a smart watch, but as always, it will be the first to get it right.
All those analysts saying the Apple Watch will fail are idiots who don’t know anything. The Apple Watch will be a massive, MASSIVE success and will cause Apple’s stock to soar much higher - perhaps as high as $200 within 2 years (this is coupled with the iPhone still growing at a crazy rate and the share buyback).
No, it’s not a gadget. No, it’s not a fashion statement. And no, for the last time, Apple has not lost its “mojo.” Rest assured analysts worldwide will go on long tirades and even longer articles on why the Apple Watch is doomed to fail, why it’s a failed experiment, why it won’t catch on and why Apple has just “lost its vision.” There will be page after page of that stuff in every major blog and newspaper. Needless to say, these idiots are, as always, completely and absolutely wrong.
The Apple Watch is the first and perhaps the only smart watch worth owning and it will revolutionize our world like the iPad did (but not like iPhone or iPod, I believe). Its sales will be incredible and blow past every projection these “analysts” might have. My own personal one-year sales number? Hard to say when I don’t know how many countries it will be sold in (and when!) but I think that by the end of 2015, Apple could sell 10-15M Apple Watches.
Okay, but why will it be so sucessful?
Because it’s a genius product. One day, I will write an entire essay on why the Apple Watch is the best thing since the iPad, but for now, trust me when I say that the Apple Watch shows that Apple is getting even more creative and innovative. It’s just an outstanding product that is very well-thought and does exactly what Apple hopes it will do.
Also, it is by far the best smartwatch and, at least for the upcoming 3 years, it will be the only smartwatch worth buying for 90%+ of people out there. Smartwatches will catch on for many reasons, one of them being the ease of use and practicality.
More on that later.
Why not sell my stocks before the crash, hoping to rebuy after the crash is over?
Because a) it creates capital gains b) you don’t know how deep the crash will be and I don’t do that kind of micro-trading c) trading fees d) in the unlikely event that a hedge funds decide to massively buy Apple, you will lose your shares. Overall, the risk just isn’t worth it. Buy call options during the crash instead.
What’s your play?
I am hoping to buy 50 Apple May 15th, 2015 calls at strike price of $130 exactly during that crash, at round 75-85% of the event. Right now, those calls are $5.15 each, and I am really hoping to get them at not much more than $4 each. Good volume, good price, lots of time to resell and, with AAPL’s earnings due in late April (which will be 2015Q2, which will also be extraordinary for Apple - more on that later), you have a lot of time and safe ground.
I will buy 25 more of those exact same calls if Apple keeps falling in the days that follow (possible, especially given the market is at records and some bad news might come out, but also in the event the flash crash lasts longer than I expected), and 25 more the week after if Apple is still low. My total cost for this trade should not be over $35,000. If I do end up with 100 calls, I plan to keep at most 50 during the earnings, barring exceptional events.
Fundamentally, Apple’s share price is still too low. I won’t go into too many details right now, but with the upcoming earnings in April, Apple is going to blow it out of the water once again. Apple will also announce a major share buyback which will prop up its stock massively. The only major problem right now - and the reason I don’t go 100% Apple - is the strong and “getting even stronger” US Dollar, which is really hurting Apple’s profits in Europe in particular.
One more thing…
Apple was recently added to the DOW Jones index. This is huge. Huge, huge, huge. Many major funds seek to replicate the DOW and this implies that a) they have to buy some Apple shares if they hope to track the index accurately b) they have to hold these shares. This will create a tremendous pressure on shorters because the float will be reduced. Combined with the soon-to-be-announced buybacks, Apple’s share price should be under upwards pressure.
Buying October 2015 calls at $130-$140 strikes works too. Buying Jan 2017 calls would work as well. The risk is a bit lower, but the leverage is lesser.