On March 7th, I wrote a post called, “Apple’s Ace up Its Sleeve.” I proclaimed that Apple was about to take off and I explained why I was stocking up on Apple options. How good was the call? Just like my calls on the market, I was spot on. However, just how good the call was surprised even me.
If you look back at my posts, you will see that I accurately called the bottom of the market. On March 7th, I sold my Citigroup puts (I had been shorting from 29 to 20) and began stocking up on Apple options (I began buying at 122). However, I did not put my entire portfolio in Apple since that would be a very risky move. I still held onto my commodity positions in case I was wrong but overexposed myself to Apple. This way if the market crashed, I would lose money on Apple but make money on commodities but still make money if the opposite was true.
This week was the week that I finally went balls out and put all my money into Apple. I bought April 135 calls and scaled up to 145 as the price rose to gain more upside exposure. Although I would love to take you through all the technical analysis that I did to make the money I did, I can’t. That would take a three page paper. However, I will take you through the money losing play I did today. Here is the Apple chart since March 6th with the yellow oval indicating when I advised buying options (click for a larger image):
First off, I’ve written before about the selling on strength or cashing out pattern that Apple has almost always displayed after events. Knowing that, any informed individual would then buy options on the way down, not up.
I erased all my other technical analysis I did by mistake while trying to clear my technical studies. What you see today is why I sold my Apple options. Previously I had bought options at the price points defining the lower extremes that defined that trading channel. Today, when that trading channel broke, I knew it was time to sell. However, that was the last of the confirmations that I needed. Here is a closer look at the sell signal:
What were the other technical signals? From 122 to 140, the pros were at work. There were clearly defined trading patterns that everyone was taking advantage of. Once we got to 143 to 145, those trading patterns disappeared. The price fluctuations started to move in random directions. What did this signal? It was clear to me that this was uncontrolled enthusiasm and a lack of discipline at work. It is the exact opposite of what I saw on March 7th which marked uncontrolled fear. In laymen’s terms, those late to the party wanted in and were willing to pay any price.
How does this look technically? Look at the Money flow indicator at the bottom of the chart. See how on Wednesday the flow of money into the stock stayed flat while the stock price rose? The experts were selling while the rookies were buying.
So this morning, I woke up knowing this and decided to still go long Apple with caution. As soon as that channel broke, I decided to cut losses. Taking a loss is not easy, but when technical indicators are all pointing south you have to admit defeat. I lost $2000 in about 30 minutes. Ouch. But then again I’m still up $5000 in four days from only $4000 of invested capital. If I wouldn’t have cut losses at that moment, I would be looking at a $5000 dollar loss for the day and a $2000 dollar gain for the week. It’s amazing what a couple of hours can do to returns. Options are not for the uninitiated or stubborn.
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