Trade Alert: Insights, answers and scaling into more of one tech stock

I’ve got answers to your questions along with some good insights from other subscribers below:

@Cody: Are you still recommending WDC short into Seagate earnings this tuesday?

I wrote this a couple weeks ago, but let me repeat it for new subscribers or those who missed it. It’s a very important point: “Let me be clear that the main reason behind our WDC short is to hedge against our STX long. I do think that WDC is very cheap much like STX is, but I think WDC has company-specific problems that will keep the WDC the stock from being able to rally nearly as much as STX does over the next few months…and if both stocks fall, I expect that WDC will fall more than STX would over the next few months. That’s not the same as saying that I think WDC is going to fall over the next few months. WDC is part of a pair trade with STX and not an outright short bet, you see?”

From an article on WSJ today: “Shares of Seagate Technology Inc. STX +3.65%  and Western Digital Corp. WDC +1.15% also posted gains. Seagate was up 3.5%, while Western Digital rose 1.6%.”

That’s what you want to see in a paired trade. And WDC is not an outright short for me, but part of a paired trade.

You’ll see this in bold below but I figured I’d highlight it up here at the top for ease of reading purposes:

I’m going to gently add to my Google calls today, looking out to September or later and using strike prices around $670 or higher. I’d like to scale into some more Google calls on further weakness but for now, just another toe in the water.:

Lots of discussion about Apple.  Here’s something else I wrote a couple weeks ago: “Apple is below $600?! How can that be?! Just kidding. $600 is just an arbitrary number that people got excited about because it ends with two zeros. $615 and $596 is pretty much the same thing — just 2% apart. Divide everything by 100 or by 10 in your mind when you deal with Apple […]”

Read the comments about Apple below, and see where I’ve inserted my own commentary. As for the answer about what to do about Apple, @eryba answers it for us when he writes:

“Listen to cody- if you have none, then use this correction to get your 1st portion of what you eventaully want to hold.”

Yes, always scale into any position and make sure you understand your time horizon. I’m not adding to my Apple position yet, because for now I’m comfortable with the size it is relative to the rest of the portfolio and the cash in the portfolio that I can use to buy more.

April 16, 2012 – 9:36 am
goog freefall continues

April 16, 2012 – 9:47 am
aapl joining it

April 16, 2012 – 9:49 am
yes this market has been acting negatively in the face of good earnings albeit we have run into the #’s

April 16, 2012 – 9:50 am
bidding on long dated calls for both goog and aapl

April 16, 2012 – 9:51 am
both just filled

April 16, 2012 – 9:51 am
feels like people dumping as reaction to good eanrings not rewarded so people getting ahead of it and selling apple down 15 WOW

April 16, 2012 – 9:51 am
Everyone’s realizing how idiotic the move by GOOG management was to do a stock split.

April 16, 2012 – 9:52 am
It obviously wasn’t a good move judging by the reaction.

April 16, 2012 – 10:19 am
goog has a pr problem at the moment
CODY: I’ve written many times over the years how I think most stock splits are a stupid waste of time that only makes money for the accountant and investment banks who peddle the new shares…but at least Google’s stock split is “essentially a stock split” motivated by a desire to keep control of the company. I’m also not a fan of voting/non-voting shares in public companies. But IMHO the main reason for the Google sell-off is more a reaction to the earnings call which wasn’t “good enough” and not about the stock split. Regardless, the sell off continues and I’m going to gently add to my calls today, looking out to September or later and using strike prices around $670 or higher. I’d like to scale into some more Google calls on further weakness but for now, just another toe in the water.
April 16, 2012 – 9:54 am
could get ugly quick

April 16, 2012 – 9:55 am
The aapl rally ride is pretty much done with

April 16, 2012 – 9:55 am
Looking like the titanic

April 16, 2012 – 9:55 am
it is UGLY apple down a quick 20

April 16, 2012 – 9:55 am
I am looking to buy some soon if things settle down

April 16, 2012 – 9:56 am
I wouldn’t buy if its for the short term. That aapl chart is getting uglier and uglier.

April 16, 2012 – 9:57 am
i say aapl a screaming buy here…long term

April 16, 2012 – 9:57 am
charts ugly but earnings are good and good guidance fundamentals vs charts

April 16, 2012 – 10:00 am
@eryba1 I expect them to have a blowout quarter so I agree on that one

April 16, 2012 – 10:01 am
I just know that so many people focus on technicals 89 days out of a 90 day quarter so I take it into consideration

April 16, 2012 – 10:01 am
look at some point U R in this investing thing long enough U get a FEEL for things- past 2 weeks its been a BAD negative FEEL GREAT 1st QTR then a drop of 10-30% for some stocks even though averages down just 6%

April 16, 2012 – 10:03 am
my feeling is that stocks running higher while estimates are being revised lower is not a good thing

April 16, 2012 – 10:03 am
I HATE to say it but CODY was SPOT on for this 5-10% decline at least for the averages if he meant them vs his stocks
CODY: You “hate to say that Cody was spot on?” Sheesh, with friends like this, who needs critics! I don’t want to pretend that I had some crystal ball and nailed this sell-off. Yes, I was looking for it and yes I implored you guys to get ready for a major downturn while we were at highs, but much of what you’re learning and seeing me do is simply good money management strategies for building your stock portfolio up big over long periods of time. It’s not about the next 5-10% move in the markets over the next 30 days, it’s about the next 1000% move in your portfolios over the next 3000 days.

April 16, 2012 – 10:03 am
Traders and those with big paper profits are taking profits on techs, but medium term is up. Catching the bottom is tough but I am not sure if charts are relevant when their is high volatility. I would rather jump in now for long-term calls. Sold short-term GOOG call position at a small profit last week and want to add to long-term call position. AAPL also should bounce up — but I would stay away from short term calls just in case

April 16, 2012 – 10:03 am
@eryba1 the S&P is still up 8% for the year and aapl is still up double digits. I doubt theirs a negative feeling out there. Much more profit taking than anything. Last year when aapl was flat for 6 months straight was a negative feel

April 16, 2012 – 10:05 am
@Mystic: I said My feeling is things have turned negative 2 weeks ago= codys correction was taking shape. apple down nearly 10% from his 644 hi to todays low 582

April 16, 2012 – 10:05 am
Please help – your opinions requested – I am looking to load up on AAPL, GOOG and FIO – waiting for ‘the bounce’ – I am sitting on 80% cash in my trading account – will it be today?? Should I wait longer?? hmmm – thanks

April 16, 2012 – 10:05 am
Bought some Oct AAPL calls. 700 strike

April 16, 2012 – 10:05 am
@sugar: I bought aapl 700 and goog 650

April 16, 2012 – 10:06 am
@Alistair: listen to cody- if U have none use this correction to get your 1st portion of what U eventaully wnat to hold

April 16, 2012 – 10:16 am
So market theme is earnings albeit good don’t matter beat notwithstanding so investors taking that cue and selling ahead of earnings.

April 16, 2012 – 10:17 am
@eryba1 because everything was baked in, in my opinion. That’s what happened to GOOG

April 16, 2012 – 10:18 am
And Cody even wondered himself if everything was baked in already

April 16, 2012 – 10:18 am
yes baked in but good guidance going forward on CHEAP PE stocks like apple and goog etc. thats why sell hi and buy low sell when all want in and buy when all want out

April 16, 2012 – 10:19 am
@eryba1 that’s exactly what you have to do. I think you’re missing my point. I’m all with you and on the long term on aapl. I’m not making a case against it at all

April 16, 2012 – 10:20 am
now even the leaders that were hurt less during the correction are corretcing ala AAPL GOOG PCLN ISRG ETC

April 16, 2012 – 10:21 am
And aapl shouldn’t even be down this much, you would have thought that aapl and not GOOG was making bad decisions

April 16, 2012 – 10:21 am
no one cares leaders correct in sync

April 16, 2012 – 10:22 am
if you are holding common and not selling today, what difference does today’s price really make?

April 16, 2012 – 10:23 am
@calmdaw1 that’s true

April 16, 2012 – 10:23 am
the diff is on COMMOn like I have U watch the portfolio value decline quite a bit. that is why i feel cody plays options more

April 16, 2012 – 10:23 am
@eryba – so the only difference is how you feel?

April 16, 2012 – 10:24 am
options are much more volatile, ie the losses are bigger on days like today

April 16, 2012 – 10:24 am
If U have common portfolios like I have u physiclaly feel the decline as I see the portfolios value rise and fall and today it feels WRONG and painful to watch and to buy but I bot some goog and apple at these levels now

April 16, 2012 – 10:24 am
yes but options have expirtaion dates so U have time, stocks is in the moemnt if I am not mistaken about options

April 16, 2012 – 10:25 am
yes, options expire, whereas common is infinite

April 16, 2012 – 10:25 am
I think you have it reversed, common holders have time, options are in the moment

April 16, 2012 – 10:25 am
But technically speaking options do expire yes

April 16, 2012 – 10:27 am
Yes but if you’re held common in aapl at $7 a share, I wouldn’t care about today’s price swing

April 16, 2012 – 10:28 am
no trust me U care a 62 pt delcine from its hi on april 10th thats VERY volatile.

April 16, 2012 – 10:31 am
aapl down $50 from where it was does suck if I focus on the 30k I lost….but the loss is only on paper because i’m not selling. My house is worth less than 5 yrs ago but who gives a sh.t since i’m not trying to sell right now
April 16, 2012 – 10:36 am
@mystic – i think we were on the same side all along. options way more volatile but higher possible reward.
CODY: Good insights on both the markets and the risk/reward differences between common stock and option strategies from you guys in there. Thanks.
And don’t freak out about near-term market moves.
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