2 Reasons Apple Will Underperform

I believe that Apple will underperform following option expiration for 2 reasons:

  1. I believe we are nearing an NDX rebalancing, which would result in a lot of Apple to sell. Apple is now nearly 20% of the NDX. The rule is that Apple cannot be greater than 24% the weight of the NDX but last year's rebalancing happened when Apple was 20.5% of the NDX.

  2. Apple is very extended and in need of a correction. We are currently in a period where people are putting their tax refunds and IRA contributions into the market. I believe a lot of that money is finding its way into Apple as it is the most loved stock out there. That period will soon be over.

If Apple rallies into option expiration I will strongly consider bearish risk reversals.


EdKent said...

I wouldn't short Apple before April 24 when they report their earnings. Shaping up to be another beat and we'll see the stock jump on April 25. After that, I'll re-evaluate.

Tsachy Mishal said...

It might make sense to wait until after earnings. Only a few days after expiration. Thanks.

frank r said...

Brave man. In the medium term, I'm pretty sure Apple will underperform versus Microsoft. Apple has benefitted recently from the early adopter crowd, who apparently have unlimited funds to buy whatever is the latest hot gizmo. Now comes the problem of selling to the struggling masses. Everyone says Apple has an unbeatable advantage due to its low-cost supply chain. I don't believe that moat, if it exists, is unbreachable. Sales are going to slow, prices are going to come down, margins will be compressed. Meanwhile, all Microsoft has to do is get a decent amount of apps available, since they've already got a pretty decent piece of hardware in the form of the Nokia Lumia, and the market will breathe a sigh of relief. PE's will converge.We've already seen some recent convergence in the security realm--Windows 7 is now more secure than OSX.