Monday, January 22, 2007

Shorting Apple Stock

At the height of all the iPhone hooplah, I decided to short Apple stock.

Shorting a stock means selling it without owning it, and then buying it later to close out the position. The effect is that you make money as the stock goes down (instead of the usual way of making money as the stock goes up).

I sold Apple stock short January 10th. I then placed a limit order to close out the position (i.e. buy the stock to "cover" the short) at 10% below the price at which I sold it.

This morning, I received notification from TD Ameritrade that the limit order had gone through, so I made a quick 10% on my money.

Apple is a great company with great products (though I am skeptical about how some of the iPhone marketing will play out). Their success speaks for itself. However, smart investing (and trading) is not always a reflection on the company. No matter how valuable a company is, it is always possible for the stock market valuation to be higher than the fundamentals dictate. When hype and headlines run rampant, it's often a strong indication that prices have gotten out of line with fundamentals.

Every year, Apple holds its MacWorld Expo, and, almost like clockwork, the stock price goes through the roof as Steve Jobs announces new products. Over the succeeding few days, weeks, or months, the price usually declines significantly. There was so much hype about the iPhone this year that I couldn't resist cashing in on the pattern.

1 comment :

Corinne said...

Well I haven't gotten into calls and puts yet in the stock market, but I also followed the hooplah and made a quick buck on AAPL. Cheers to us! :)