From a more psychological standpoint, humans are naturally lazy and gravitate towards entropy. A retail investor may use a large round number as a cognitive reference point; more or less a ‘psychological stop’ or ‘buy point’ that is easy to remember. This level may or may not have any fundamental or technical significance, but perhaps it is used because we find comfort in easy mathematics. There are probably multiple HFT algos (high frequency trading algorithms) hunting stops and orders at large round numbers like $500, but I digress.

 What is the trade on large round numbers and what may cause these large round numbers to eerily occur on Fridays? The answer is pin risk from the derivatives market.    

On the third Friday of September 2012, or 09/21/12, AAPL made its all-time high of $705.07. This was interestingly enough options expiration too. Shares were up early in the day, but came back down to close at $700.10! During September of 2011, a similar analysis was done, because AAPL was a mere 1% away from a new ATH too. Lone behold on that expiration Friday AAPL pinned right on $400. (Not to mentions last week’s close of $500 too!)

In September of 2010 AAPL pinned directly equidistant from the $270 and $280 strike. Then in September 2009 AAPL pinned right on $185. It seems as though AAPL likes to pin at large numbers. This could only potentially get stronger, because traders and investors have flocked in herds to AAPL options to speculate and hedge.

A trade off of this could be butterflies or calendars; with short strikes at the large round number of interest. The maximum profit zone for these trades is always at the short strike.

salerno.mark.a@gmail.com

In short…probably not.  The VIX hit a 52 week low on Friday and inversely the SPY hit a 52 week high. This should be expected because of the nature of the VIX and option pricing. It is interesting to note however that we may be getting close to historic lows, which are immensely interesting.

The VIX made a low of just about $10 in 1994. The index tested this low again back in 1996 too and respected it. This was just a few years before the Asian crisis and the explosion of LTCM. The VIX then trended between about $17 to $30 during 1999 until early 2001. Enron and the iraq war brought the VIX back up to LTCM highs, but then eventually retreated back to the aforementioned $10 level in mid-2005. The $10 level held a few times during the 2006/2007 housing bubble complacency era..then exploded to all-time highs.

There are a few take always from this historical exercise. The VIX obviously hits its low during times of extreme bullishness and complacency, but that does not make it a raging ‘buy.’ One would go broke buying out of the money (OTM) calls on the VIX every time it hit the $10 level. The VIX takes time to level out. During this time, the next bubble or crisis is brewing.

For us now, this is potentially the Japan debt crisis (as Kyle Bass so eloquently explains), or maybe the consequences of QE…who knows.  The only thing traders do know is that the VIX has respected the $10 level historically, and after some time muddling around this level… something hits. Perhaps the best thing traders could do is sit still and remove themselves from the market in order to take a fresh look at things and avoid the confirmation bias.

salerno.mark.a@gmail.com

Kuo is expecting to see a refresh of the MacBook Air at the end of Q2 2013, but this is just the calm before the Apple storm. After the end of Q2, Apple season will be in full swing, ripe new products for consumers to pick will start to be announced. Q3 may be full of new neat products. Fresh designs, refreshes cycles, and the iPhone 5S are all expected to be rolled out.

Specifically and chronologically, the iPod nano is expected to be refreshed. Moreover, during this time KGI expects AAPL to modify the iPod Touch 5. Most importantly, in early Q3 the iPhone 5S is expected to be released. Later on in the quarter a newly designed iPhone 5 is expected in addition to the iPhone 5S. Kuo thinks that the lower cost iPhones will come in a variety of colors. The lower cost iPhone may also be thicker, 8.2 mm vs. the current 7.6 mm, according to the report. Other items of note in Q3 include a new design of the Retina MacBook Pro and a mini iPad 2. Then finally in Q4 the iMac (desktop) is expected to be touched upon.

All things considered, AAPL has some impressive new products coming out, but it is hard to tell if they will be good for the stock. Price points and other data points will be crucial to know in order to make a trading/investment decision. The street has already made their calls however. The analyst community has an average price target of $729 for shares, with $48.00 estimated for the current year.

salerno.mark.a@gmail.com