1/4 Daily Market Note: Skittishness
Skittish
Note: 2 Companies from our Coverage & Portfolio - Miniso and TCOM - rise from optimism on selective pockets of China’s consumer spending trends. We wrote about them on Seeking Alpha as Free Ideas for the Public. Members now see them up 7% and 12% today, respectively.
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Hi Folks -
The market wrestles with the return of a 4% reading in the 10Y Yield and that is turning last year’s “Buy the Dip” sequence into this year’s “Sell the Rip” theme. Yet, despite this malaise driven price action, the VIX is still showing subdued price structure. This means there is still reason to maintain modest Bullish Exposure in case market snap back up. The vehicle of choice, for now, is to Sell Puts on select names and ETFs until the market finds its footing.
There’s one company I’m starting to build a Sell Put position on.
That company is Apple. After a 10% correction and a revisit to a 30 RSI level (oversold reading), I’m Selling Puts on AAPL 2/16/2024 Expiration (45 Days Away) at 165 Strike in Light Size. Contracts go for 1.09 based on my last check.
This is now updated in the Dashboard.
Apple has seen a few Analyst Downgrades recently on iPhone inventory concerns as well as perceived weakness from China due to ongoing structural lowered expectations of consumer spending. These downgrades are reasonable, and Apple’s Fair Value according to my DCF should be closer 170-175 based on a reasonably a No-Hard Landing scenario. The company fetches a 27X Forward P/E at the moment where the low-point in valuation over the past 5 years is 20X. This implies if we get a 20% sell-off from here to 140-145, we would reach levels where I believe going long Call Options with far out expiries should work in our favor. At 182/share, I’m not confident Call Options here will work. Best to let Theta (Decay) whittle down Put Option buyers who are chasing for extreme short-term downside here.
165 is a level where intermediate-term Longs on Apple may see 5-8% intermittent upside potential for Direct Shares over a 3-6 month period if assigned. That neckline level is my Strike price.
In the meantime, I’ll keep watching AAPL to see if Direct Shares or Calls can work in the coming days & weeks. Selling Puts is safer than Direct Shares/Calls but the profit size is proportionally smaller.