Chat Transcript for Mar 7, 2012: iPad 3, ABC’s “Lost Returns”, a fake Facebook supplier, FIO strategy and much more
Here’s the transcript of today’s chat. See you next week at 2pm EST at http://tradingwithcody.com/chat for more Q&A where you can ask me anything.
Q. Cody: Is it possible to get the rating for the stock when you send out the trade alert? This will help us to do the trade based on whether you have a very strong opinion or not.
A. Great idea, yes, I’ll start doing adding a rating for each stock when I write up any Trade Alert.
Q. Hi Cody: WDC has underperformed STX drastically over the past few months, is the flooding priced in? I haven’t followed the pair in a long time, does STX have a flash component to drive the spread wider? Also, what about the backbone of the cloud, I would imagine it will always be hard drive based?
A. That is a good point about how WDC has underperformed STX, but no, I don’t think the problems for WDC are fully priced in yet. That said, a mentor of mine used to tell me, “May all your hedges lose money” because that means you’re probably making money on the primary positions that the hedges are supposed to be hedging against. In other words, I think STX has much more upside in future months than WDC does and if that’s the case, it’ll still be a victory for me and you guys. That said, I wouldn’t have shorted WDC even as a hedge if I didn’t think it were going to fall from here. As to your second point, see, that’s what FIO is revolutionizing — they rightly recognize that flash prices will drop below disk drive prices even for servers and inside the cloud over coming years. The disk drive industry will likely cease to exist by 2025, IMHO.
Q. did you end up buying more Apollo puts? gold puts?
A. Didn’t add to the Apollo puts (yet?). These puts kicked in nicely as the stock fell past their strike prices and I frankly probably need to sell some of these and “roll them down” to lower strike prices with longer-dates to lock in some more of these APOL profits and make the position a little smaller relative to the rest of the portfolio. To explain relative size a bit further, understand that when puts kick in and you catch a double or a triple on these puts, the “notional size” of these puts increases dramatically because now that they are in-the-money, they will increase a $1 in value for just about every $1 the stock falls from here, making them more of a straight short than they were when they were still out-of-the-money because at that point I was also paying up for the time premium more than a price premium (see last week’s chat discussion http://tradingwithcody.com/2012/02/29/chat-transcript-for-feb-29-2012-options-apple-apol-and-much-more/ for more on time premium and time decay on options). I did some GLD Sept 161 puts when I wrote about it but it’s a very small position for now and even if GLD were to fall below $161, I would still only have about 1/3 as much exposed to GLD as I do to my APOL short via the puts I own in APOL right now. Does all that make sense to you guys? Ask me for more clarification on any and all of this if you’d like.
Q. What do you think about fading apple into the close with a weekly put fly?
A. Well, the long-anticipated AAPL iPad 3 details are here, along with an upgraded version of Apple TV, and the stock has neither tanked nor spiked in reaction today. Your guess is as good as mine as to whether the analysts will come out and increase their estimates for AAPL’s earnings next year in the research notes they’ll issue tomorrow (my guess is that yes, we’ll see some number bumps, but we’ll see some conservative commentary about the new features overall — fact is though that the Apple iPad 2 is still at least two years ahead of any Android or (don’t even try it) Windows tablets and the iPad 3 is now 3 or 4 years ago of today’s Kindle Fire, so who cares. Apple remains headed to $1000 by 2015, IMHO.
Q. I just read that the iPad 3 has more memory than an xbox 360. With tablets becoming more powerful do you think that in say 10 years anyone will be using desktops and/or video gaming consoles for everday gaming/computing tasks? Will we look at someone on a desktops and say,” wow you still have one of those?”.
A. I love to think about how today’s trends will extrapolate into tomorrow’s markets like that. And yeah, I tend to think that within ten years, I’ll have a credit card-sized or USB-sized smartphone/PC/camera/projector gadget that will always be connected to everything I care about on the cloud/Internet and I’ll be able to tell it verbally to put me in a Star Trek-like holodeck when I watch the seventh and final season of ABC’s “Lost Returns” in my living room in my pajamas on my ranch in New Mexico on a Saturday night with my future wife and kids. But as for me personally, I do collect old electronics and I bet I’ll still have the 15 computers I’ve owned and used over the last decade.
Q. Cody, what do you think about the news vs action on Netflix? Thanks
A. I think Netflix should be trying to get cable stations to broadcast the cable station’s daily feed on Netflix instead in addition to today’s news of trying to get cable companies to offer Netflix. I think Netflix is headed much much higher in coming years IF IF IF they company’s management, namely the CEO, whom I’ve interviewed and met several times and thought very highly of until the recent debacles he’s created for the company, don’t mess it up. I’m not convinced enough that management won’t keep screwing things up to get me into the stock. As a short-term trade measured in days, I’d be a buyer right now but again, I’m not personally pulling that trigger.
Q. what’s your strategy for FIO in the near and intermediate term?
A. I’ve got several FIO options, including March $30s. Because those March $30s need the stock to be above $30 to be in-the-money by next Friday, I’ve got to hope and pray that we get at least one more quick spike so I can roll the $30s up to a higher strike price and a longer-dated expiration (like with the Apollo put strategy I outlined above) BEFORE next Friday. My back being against the wall on those March $30 puts will affect my strategy personally here. I am gambling that this stock can continue to rally before those $30s expire but if the stock falls below $30 before next Friday, then I’ll end up with a total loss on those remaining March $30 FIO calls (I’ve bought and sold some of those FIO March $30 calls for big profits as the stock has fluctuated back and forth over the last few months, as you guys know). Anyway, as always, I’ll let you guys know if and when I make any moves in the FIO options I do own. As far as the long-term strategy for FIO, I plan to own the stock and or buy call options as long as the company continues to execute and grow and revolutionize its industry.
Q. is aapl going to see a hit on earnings because of the ipad3 coming out in march like it took a hit a while ago when people waited to buy the new thing???
A. It’s possible that the analysts haven’t accounted for people holding off for the iPad 3, but I don’t think so. It’s still a long ways away from Apple’s next earnings report and I’m not going to pretend that I can try to figure out what’s priced into that report the day the iPad 3 is finally announced, you know?
Q. Cody, does STX have a flash component to drive it fwd?
Q. (1) Ditto on that question as to whether STX has flash component to drive it forward and if not, how long are you comfortable holding the stock and what signs should we be tracking that STX is making the necessary adjustments (or not). (2) Four or five interested parties have contacted me re. the get together at my place on March 15th 6pm (215 W 6th St. P.H. 12, Los Angeles 90014) and I’m really looking forward to it. Have a few logistical questions for you like how many other guests I should limit this to ie. do we want a small group gathering or more like a general free for all party or do you even care? Is there an email where it’s best to contact you or an assistant? Best, DB
A. (1) No, STX doesn’t have enough of a flash strategy for me to think they’ll successfully make that transition. I think we’ve got at least a year of owning STX as they buy back 100MM+ shares and issue a big dividend and take advantage of their newfound pricing power to blow away estimates for the next couple years. I’ll be on top of STX along the way and will let you guys know if and when there’s a reason to start to move on earlier than that. (2) Thank you and no, I don’t care how many people want to come hang out at your place as long as you’re comfortable with it — we don’t want to be any kind of a bother, of course. Any questions on this topic or any other for that matter, just send an email to support@tradingwithcody.com and my assistant will get the message. Thanks again for your offer, David!
Q. What I’m saying is what if a couple of the inputs into those models are wrong? Makes sense to put on some hedges, especially since they can be had relatively cheaply. The market is on more of a hair trigger — ready to explode higher or suffer another sell off — than anyone is willing to admit and I want to build some downside protection into our Revolution Portfolio. …..what about this anything here and now you can say about what you are doing/planning on doing?
A. Yes, I am putting on hedges right here right now, as you know. We’ve shorted WDC, we’ve taken some big profits in Cisco and F5 and have made several other moves to hedge and raise cash after the big run our portfolios have had. By the way, did you guys know that tomorrow is TRADINGWITHCODY.COM’s ONE YEAR ANNIVERSARY?! Thank you all for helping us build and grow and figure out what investors need to know.
Q. do you believe CY when they say the bottom was in Q1 and that sales are picking up?Or is CY just not in the apple eco system and BRCM, sndk better because they are tied to apple? any others in the apple eco system or do we have enough exposure to apple and its eco system??
A.Believe it or not, we are putting the finishing touches on a brand new investment book for you guys called “10 Apple Stocks” that will be all about pinpointing the best ways to play the ongoing Apple Revolution and its latest products. And, yes I do believe CY when they say that, but I’m not sure I care what they say…they should have delivered better results in this environment.
Q. Seems like NFLX has a broken business model. What is NFLX bringing to the table for cable industry? Maybe more than Zilch? Any thoughts?
A. Netflix is hoping to convince the cable companies that they’ve hit critical mass with the content Netflix offers. Cable companies can’t go out and negotiate all the same deals and instant access to the movies and shows that Netflix has in its roster. And its that instant access technology combined with their database of movies and shows that Netflix is trying to sell the cable companies in today’s news reports. My point is that I’d rather them try to convince the cable companies that Netflix customers should be able to simply watch say, the actual FX cable channel — commercials and all, over the Netflix system via all the devices through which people are watching Netflix and not cable TV channels right now. Flip it! And don’t flip that channel. Ha.
Q. on WDC, how far out are you buying your puts?
A. I just shorted WDC common so far, didn’t buy any puts (yet?).
Q. NTES?
A. I’d rather own BIDU than NTES, but I’d rather own GOOG and AAPL than either BIDU or NTES.
Q. Do you have any take on BVSN and FB relationship?
@Ezone, No, I do not think that FB has anything to do with Broadvision except that stock promoters are trying to convince people otherwise. Here’s what I wrote about Broadvision just a few weeks ago: http://tradingwithcody.com/2012/01/26/two-earnings-reports-tonight-to-talk-about/ Broadvision – This company did a 1 for 25 split and a company called JIVE that does business software like Broadvision came public last month — and Broadvision has rallied from $7 to $44 and is right now today down 5% at $23. Broadvision was obviously a great trade at $7, but anybody who thinks that this company is going to suddenly turn their business around after years of declining revenues simply because a competitor came public…well, I highly doubt that Broadvision will be a double digit stock this time next year. I’m not sure that tonight will be the night that will freak out all these new BVSN longs, but I do think within six months this stock starts to collapse. I’m trying to borrow some BVSN shares to sell short since there are no options on this stock…yet. There aren’t any shares to borrow that my brokers are finding either…yet. But let’s put this one on our radar and I’ll be looking to borrow some shares starting today and on into the next few weeks and/or buying some BVSN puts if and when options for BVSN come available.
Okay guys, that’s it for this week’s chat. Great stuff, thank you! And how about this — I’m going to order a bunch of TradingWithCody.com hats and T-shirts to give away to you guys to celebrate our one year anniversary. Just shoot an email with your mailing address and tell us if you want a TradingWithCody cap or a TradingWithCody T-shirt (they’ll all be size L, ok?) and we’ll send you one in the next couple weeks when they’re available. Rock on and thanks again.