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Apple is Not Perfect: Maps App Disappoints 10.2.2012

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In actuality, only 0.55 percent of all iPhone 4 users complained to the company about the issue, and the number of phones returned to Apple was only 1.7 percent; 4.3 percentage points less than the number of iPhone 3GS models that were returned in the first month of that phone’s launch.

So in case you missed it, AAPL basically started to use their own data for the new map app in the iOS update, as opposed to GOOG data, and some 3D satellite images and directions were botched…and that’s it. Many strategic speculations can be pulled from this news, but basically it is an example of AAPL’s push for dominance in the app space they pioneered. Apple obviously wants to own the app tiles on your iPhone screen and the map function was ripe for the taking. The app market is a pretty organic, considering the low barriers to entry. Anyone who wants to make an app can readily develop one and have the marketplace decide if it is good. Should an entrepreneur be discontent, he or she is not held back by AAPL. If we have learned anything from Steve Jobs it is not to accept the status quo and keep pushing, for new frontiers await.

In order to remain unbiased, it is important to look at what the market said during this period. For us, it always boils down to the trade. AAPL longs hope this will blow over quickly before the media cycle really takes a hold on the story and puts a new ‘headline risk’ into the stock. Shares are off some 6% from the all time high, but with the rumored iPad mini coming out in a while, that high could soon be violated. Google longs could probably care less, for every day GOOG seems to push against a new high; and at last check GOOG was $3.00 away from said high.

In related news, AAPL analyst Shawn Wu at Sterne Agee said that iPhone yields are going to move positively with volume. The firm went on to reiterate the strong product cycle and a buy rating on AAPL shares with a $840 price objective despite map app concerns.

E-mail the author with any comments, questions, or any inquiry

mark@keeneonthemarket.com

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Morning Rage 10.2.2012

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Crude oil is up slightly, an eighth of a point, and gold and silver are both down, two and a half points and sixteenth of a points respectively. Platinum is down eight points. Corn is down three and a half points.

The Mosaic Company (MOS) will report its quarterly earnings before the bell this morning. MOS is currently trading at 58.01 up more than ten points since June and trending slightly up in the past week before earnings. Mosaic has moved around 3-4% on earnings and has missed three of the last five estimates.

Motor vehicle sales reports come out today, but otherwise, no major economic announcements are expected today.

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Associate Option Battle 10.1.2012

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Notes: I like this trade because I think Amazon is in a stall period and if I make money on the front month when it expires, I get a cheap ITM Call, if I want to hold on to the back month, on a stock that has shown impressive growth.

Associate Jim’s Trade

Trade: Buying 9 MON Oct12 92.50-97.50 Call spread for $1.05

Risk: $105 per 1 lot

Reward: $395 per 1 lot

Notes: Bullish trade ahead of earnings on Wednesday, stock rallied 3 out of the last 4 earnings.  I expect the stock to rally after earnings and I think this trade has a good risk vs. reward profile.

Alex Kalish has a masters degree in economics from Suffolk U

Jim Ramelli has a B.S. in Finance from UIUC

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October Seasonal Commodity Performance 10.1.2012

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Shorting silver from October 4th to October 29 has worked 23 times of the last 39, or a 59.0% success rate. Strong policy initiatives in Europe and the US last quarter could be driving usual seasonal dips for metals higher. Crude oil generally stays weak in October and stays weak until December. Crude futures were down in the month of September with a slight rally in the last week. 

In grains, long trades include corn and soybeans, while wheat tends to consolidate. Soybeans usually decline from a peak price in June. This year Soybeans saw a low in June, gained till early September and then declined till the end of the month.  Corn hit highs in August because of droughts, declined into September and had an huge rally on the last day of September.

Live cattle prices should continue its uptrend, and with possible corn shortages forcing early slaughters this summer, a strong uptrend may be in order. Hogs were also affected by the droughts, which may fight the usual downtrend in October when farmers would normally be fattening hogs with corn harvests.

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Covered Call of the Day ATK 10.1.2012

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The trade is to buy the stock for $52.00 and sell the Nov12 45 Calls for $7.60.  This trade has a breakeven of $44.40 and would yield a return of around 14%. We risk the stock going to zero for a max reward of what we sold the call for.


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Pregame MOS Earnings From Every Angle 10.1.2012

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They will announce October 2nd 2012 before the market open, so option trades must be executed by the close on Monday. It is prudent to look at a little bit of MOS earnings history before diving into the options activity, charts, and fundamentals.

Below is a daily candle chart of price’s reaction to the past 6 earnings announcements from MOS. After five of the last six releases, the stock gapped and continued the trend three to six days post the event. One time the stock gapped up and grinded sideways, but otherwise it has trended…a powerful tell for traders.

Now to what is implied for the coming event, because the October options still have about 19 days to trade, it is best to look at the weekly options as an organic way to derive what is implied for the event on the 2nd. Using an implied volatility & time based model, we calculate the one-sigma move (68% probability within) to be roughly + or -$3.31 and the two-sigma move (95% probability within) about $6.62 either way, by October 5th. On Thursday, September 25th 2012, the stock had a solid bear candle…testing the lower end of its recent range from post Q4 earnings. Implied volatility (a measure of risk, supply and demand, relative price, and an input into theoretical models) in the October monthly options rallied up 400 bps from about 30% to 34% IV (implied volatility). Given the pump up in IV, there in now more premium to work with.

The following chart includes the one and two sigma rolling probability cone and a confluence of simple moving averages (50,100, 150 and 200). From a technical prospective, the range from mid July of 2012 to now has been solid horizontal support at $56.60, for it has been tested many times. It is also interesting to note the assemblage of simple moving averages. They will sit just below the lower end of the implied one-sigma range on expiration Friday…strong potential support (see chart).

The ATM (at the money $57.5) weekly straddle (lifting the offer) is at about $2.75 or about $4.8% of MOS. Using a theoretical model, and adjusting time and implied volatility, in order to break even immediately after the event, Wednesday, MOS must move up $2.64 (4.4%) or down $2.82 (-4.7%) to offset the IV crush and time decay. I came to post event weekly IV of 33.5% from looking back at prior releases. The average drop in IV was 31%. It is important to be conservative, for estimating lower IV puts your break evens farther away on a long straddle…planning for the worst, and hoping for the best!

Fundamentally, MOS was recently reiterated as a buy from Citi; looking for $71/share from $66. Citi called for an extended agricultural cycle, after the dramatic droughts across the Midwest destroyed crops. Elsewhere, of the major houses, analysts have 17 buys, 7 holds and zero sells. The median multiple for next year is 10.47 and the average price target is $66.95.

It is important to build a ‘mosaic’ when looking at potential trades. Taking bits and pieces from many indicators, markets, and theories creates a well informed trader.

E-mail the author with any comments, questions, or any inquiry

mark@keeneonthemarket.com

MarkMOS1 MarkMOS2

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Morning Rage 10.1.2012

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Cal-Maine Foods Inc. (CALM) is scheduled to report quarterly financial results this morning before the market opens. Cal-Main is the largest producer of shell eggs in the US. A market cap of 1.08B, the stock has seen a steady yearly growth of 50%, $0.04 below the 52 week high of $44.98. The stock was up $0.36 on Friday.

The ISM Manufacturing Index will be released today at 10 am EST. The survey measures manufacturing employment, production, new orders, supplier deliveries, and inventories. Any result above 43 shows growth in the US economy, but a shrinking manufacturing sector. Any number above 50 shows a growing manufacturing sector. Analysts are projecting a tenth of a point in growth to 49.7.