Tag Archives: apple

Is Blackberry($BBRY) back?

Today, the company formerly known as Research in Motion (RIMM) became BlackBerry (BBRY). On Friday, RIMM had closed at $13.03. Today, BBRY opened at $13.71, up 5.22%. Throughout the day, BBRY continued to perform extremely well despite a declining market. At the end of the day BlackBerry closed at $14.98, up 15.02% for the day. In after hours trading BlackBerry is trading up $0.15 or 1%. Overall, BBRY had a great day while the market heads lower— Dow down 0.93%, S&P 500 down -1.15% and the Nasdaq 1.51% lower.  So why did BlackBerry end up 15% higher today? Was the Super Bowl commercial that good, or does this company really have value? Let me lay out what I think every investor should know about BlackBerry before they take out their checkbooks and invest in this stock.

After numerous delays and development issues, BlackBerry finally unveiled their new phones on January 30th, 2013. On that same day, they also decided to drop the Research in Motion name and just simply be BlackBerry. The two phones are the BlackBerry Z10 and the BlackBerry Q10. The Z10 is 4.2 inch touchscreen smartphone, similar to the popular smartphones currently in the market, such as the iPhone. The Q10 however  still contains the iconic physical BlackBerry keyboard. Both will run the company’s new operating system, BlackBerry 10. Looking at the graph below, you can see that on the day of the announcement BlackBerry actually decreased. The reason, I think, is that investors have been waiting for BlackBerry to come out with a new phone for almost 18 months now, and this just wasn’t big enough to restore faith in BlackBerry. In addition, the fact that the phones wouldn’t be available in the US until March might have discouraged investors as well. This sent BlackBerry stock back into the $13 range, which is great entry point for the stock based on a Discounted Cash Flow (DCF) valuation (valuing the stock at $20) and relative valuation. However, I am a little skeptical to whether or not BlackBerry will be successful in the future.

rimm

Today, when BlackBerry started trading under the new name and ticker, BBRY, we saw it end the day up 15%. When i was trading BBRY today, it seemed as if I was trading an IPO. BlackBerry had been on a downtrend ever since the unveiling of the two news phones, and today, as soon as it started trading under the new ticker we see it do extremely well. I read an article today that said that sales in the UK seem to be strong. Some places where running out of the phone, and most where seeing strong demand. According to a note obtained by Forbes, an analyst at Jefferies stated that “We estimate sell-in to be at least several hundred thousand units. To put that in perspective, the iPhone had first weekend sales of 5 million+ in the U.S. The U.S. is five times larger so continued strong sales could bode very well for Blackberry.” If this holds true, BlackBerry will see their stock jump higher than the 15% we saw today.

I would be very skeptical when trying to trade BlackBerry. Early indicators such as UK sales, tell us that they might have a good product and people might like it. However, we have to keep in mind that it might be a little too late for them. People have already fallen in love with the iPhone and the Galaxy, so it might be tough trying to win these users over. Also, the US will be the biggest test to see if BlackBerry will comeback and be successful. Since the new phones will not be available in the US until end of March/early April, it will be tough to see if they can regain some market share. I will continue following BlackBerry and see how the new phones perform in the UK and Canada. This will give me and idea of how the phones might perform in the US once they are released here.  That being said, I think that BBRY does have potential but I’m not 100% convinced yet. I would continue trading this stock at small blocks or even options. This way, you will not be risking much and at the same time you will not miss any big moves, like the one today. I will keep you guys updated as more data comes out.

 

 

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UPDATE: As History Would Have It: An $AAPL Earnings Play

As many of you read my post two days ago outlining how to play Apple earnings, I want to check in and see how the position is performing. Despite the position being relatively expensive, Apple did not disappointing and is currently down 10 percent after hours, trading at $460.

If you recall, I created a strangle on Apple using the current January weeklys. I paid a net cost of $23.40 to establish the position using long position in a $490 put and $510 call. Since the position was relatively expensive to create, I had break even points at $463.60 and $536.40.  Obviously, the more important break even point in this situation is the $436.60.

Looking back, the position was probably too expensive and had already priced in the volatility. However, As of a few minutes ago, The position is in the money. I am looking for this position to continue deeper into the money for the following reason.

Apple has broken below its 3 year upward trend line, which in my opinion is the start of a significant down trend. Even after the dip below this trend line, technical indicators are not indicating that the stock is, by any means , oversold.

trend

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Breaking Down $AAPL Earnings

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After much anticipation, Apple released its first quarter earnings for FY 2013. As many of you know, this was a crucial earnings report following a 20% sell off over the last three months.

Apple announced that it had quarterly revenue and net profit of $54.5 billion and $13.1 billion, respectively or $13.81 per diluted share. These results can be compared to quarterly revenue and net profit of $46.3 billion and $13.1 billion a year ago, or $13.87 per diluted share. This is a 15.05 percent increase in revenue from a year ago, but a zero percent change in net profit. Furthermore, profit margin fell from 44.7 percent to 38.6 percent, yielding a 6.1 percent drop.

Despite narrowing margins, Apple sold a record 47.8 million iPhones. This can be compared to just 37 million iPhones sold in the year ago quarter. This is a almost a 30 percent increase in iPhone sales compared to the year ago quarter. Similarly, iPad sales increased from 15.4 million units to 22.9 million units, yielding a 49 percent increase. Sales of both mac and iPod fell modestly.

The tighter margins can be attributed to an increase in operating expenses compared to the year ago quarter. Specifically, spending in research and development increased 33 percent to $1.01 billion.

Sales in Europe, China and Japan increased 11, 67, and 25 percent respectively.  Currently, these three countries are supplying apple with 61 percent of its revenue.

Apple indicated that they expected revenue for the second quarter of FY2013 to be between $41 billion and $43 billion, with a gross margin between 37.5 percent and 38.5 percent. Furthermore, they expect gross expenses to be between $3.8 billion and $3.9 billion.

As we now await Q2 earnings for FY 2013, I expect international sales to increase and become an even bigger part of Apple’s revenue. The U.S. may not be saturated with regard to the entire mobile phone and tablet market, but it is saturated in the sense that people middle to upper class individuals who can afford Apple products can already afford them. On the contrary, international markets are largely untapped and whether it be through a cheaper iPhone or already existing products, I am expecting them to continue to tap these markets.

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As History Would Have It: An $AAPL Earnings Play

OB-TW733_apple0_E_20120724165406

What:

To profit from Apple’s earnings report this Wednesday, we are going to create a strangle using out-of-the-money options.

Why:

Date Estimate Actual Close Pre Earnings Close Post Earnings Percent Change
10/25/12 $8.75 $8.67 $609.54 $604.00 -0.91%
7/24/12 $10.36 $9.32 $600.92 $574.97 -4.32%
4/24/12 $10.06 $12.30 $560.28 $610.00 8.87%
1/24/12 $10.08 $13.87 $420.41 $446.66 6.24%
10/18/11 $7.28 $7.05 $422.24 $398.62 -5.59%

Simply put, I am making this trade based on history. Nothing more, nothing less.

Historically, Apple stock exhibits volatile and large price movements following it’s earnings releases. In fact, four out of the last five earnings reports have resulted in price movements of at least four percent. With that being said, it is not unreasonable to anticipate a significant price movement following Apple’s earnings report this Wednesday. In order to take advantage of this, we can employ a basic strangle using out-of-the-money options that will allow us to profit from a significant price movement, regardless of direction. A strangle also limits the loss of the position to the net cost.

How:

Price Call Strike Price Put
25.9 $485.00 $11.00
23 $490.00 $13.05
20.3 $495.00 $15.30
17.8 $500.00 $17.75
15.45 $505.00 $20.40
13.35 $510.00 $23.20
11.45 $515.00 $26.15
9.65 $520.00 $29.40

To successfully create a strangle, we need to take long positions in an out-of-the-money call and an out-of-the-money put. It is recommended that the strike prices of these out-of-the-money options be equidistant from the current price of the underlying instrument, which in this case is Apple common stock. The further out of the money the options are the cheaper it will be to establish the strangle and the smaller our max loss per contract will be. However, the further out of the money the options are, they less likely the strangle will expire in the money.

Currently, the price of the underlying Apple common stock is exactly $500.00 (Cool, I know). Using the January weeklys, which will expire this coming Friday (January 25th, 2012), I am going to take a long position in a call with a strike price of $510.00 and a put with a strike price of $490.00. These options are priced at a per contract cost of $13.35 and $13.05, respectively. Since we are taking a long position in both the out-of-the-money call and the out-of-the-money put, our net per contract cost is equal $26.40. Options contracts are usually denominated in terms of 100 shares meaning the absolute net per contract cost of this strangle is $2640.

Profit/Loss & Break-even:

Break Even

When using a strangle, there are two break even points. Ignoring the cost of commissions, there is a break even point below the strike price of the out-of-the-money put (B1) and above the out-of-the-money call(B2). B2 can be calculated by subtracting the per contract cost from the strike price of the out-of-the-money put. B1 can be calculated by adding the per contract cost to the strike price of the out-of-the-money call. In this particular example we can calculate B1 by subtracting $26.40 from $490, giving us a break even point of $463.60. Similarly, we can calculate B2 by adding $26.40 to $510, giving us a break even point of $536.40.

Profit Loss

Scenario 1: Max Loss

As I mentioned before, my max loss per contract is limited to the absolute cost of the contract. In this particular setup, my max loss is $2640.00. I will experience this max loss if the price of the underlying at expiration is between the strike price of the put and the call. Specifically, I will experience this max loss if the price of the underlying at expiration is between $490.00 and $510.00. In my opinion, this is not likely but could happen if Apple reports earnings consistent with estimates, no misses or beats.

Scenario 2: Loss

If the underlying price change of Apple is not big enough following Apple’s earnings report, I will experience a loss less then my max loss at expiration. This can happen if the price of the underlying is in one of two ranges. The first range is if the underlying price closes below the strike price of the out-of-the-money put, but above b1. Similarly, the second range is if the underlying stock price closes above the strike price of the out-of-the-money call, but below b2. The loss in these situations is equal to difference between the price of the underlying at the sale and the strike price, plus the cost of the contract.

For example, lets say the price of the underlying Apple stock is $520.00 at expiration. Since I am long the $510.00 January weekly, I will be able to buy 100 shares of Apple at $510.00 and sell them on the open market at $520. This means I will make a profit of $10.00 per share. Even though I profit on the sale of the Apple shares on the open market, I am still responsible for the cost of the contract, which is $26.40 per share. This leaves my net loss at $16.40 per share, or $1640.00. As you will notice, this is still a loss but is less then my max loss.

Scenario 3: Profit

This is the most desirable and most likely scenario in my opinion. There are two situations in which I will experience a profit. The first is if the underlying Apple Stock price at expiration is below B1, and the second is if the underlying Apple stock price at expiration is above B2. In the first situation, I will be able to sell the underlying shares higher then market price. In the second situation, I will be able to sell the shares at a higher then market price. If the underlying stock price when I exercise is less then B1, the Profit will be equal to the difference between B1 and the price of the underlying at expiration, minus the per contract cost of the strangle. If the price underlying Apple stock price when I exercise is above B2, the profit will be equal to the different in the underlying price at expiration minus B2, minus the per contract cost.

For example, lets pretend that the price of the underlying Apple stock at expiration is $545.00.Since we are long the $510.00 January weekly, we will be able to buy the underlying at $510.00 and sell at the market price of $545.00. Since we paid $26.40 for the strangle, our per share profit will be $8.60 ($860.00).

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