The Blog

LastnightitwasrevealedbyAAPLCEOTimCookinan?

interviewwiththeWSJ?

thatthecompanyhadbeenengagedinanAcceleratedStockRepurchase(ASR)program,buyingbackatotalof$14billionshares($2blnintheopenmarket)sincethecompanysdisappointingfiscalQ1reportonJan28th,areportthatsawthestockplunge8%?

OnWednesdayinthisspace(here?

andbelow)?

weflaggedAAPLsrecentrelativeout-performance(sincetheearningsdecline)andsomeunusualoptionsactivityearlierintheweekthatlikelysuggestedsomeaggressiveaccumulationofshares。

IntheWSJinterview,Cookstatesthathe:

wantedtobeaggressiveandopportunistic,and?

ItmeansthatwearebettingonApple。

Itmeansthatwearereallyconfidentonwhatwearedoingandwhatweplantodo,Werenotjustsayingthat。

Wereshowingthatwithouractions。

ThelastthingshareholdersofthelargestpubliccompanyontheplanetwantisfortheC-levelsuiteresidentstostartthinkingtheyarethesecondcomingofStevieCohenasfarastradingtheirstocksshares?

Butletsbeclearaboutwhatjusthappenedthecompanyonlybought$5billionofsharesinthequarterjustendedinDecemberwiththestockhigherandthenbasicallytripledtherateofthatpurchasebuyingthestock5%lowerthispastweek?

Sotheydidseethesell-offasanopportunity。

Butwhythenewfoundconfidence?

Likelybecausetheyknowthings?

Cookhaspromisednewproductcategoriesthisyear,andAprilwouldbethe4yearanniversaryofthelastnewproductcategoryoftheiPad。

Asforthestockinthenearterm,$500isgoingtocontinuetobeimportantfromapsychologicalstandpointasitwasthelevelthecompanysaidenoughisenough?

IsuspectthestockshouldremainwellbidabovethatlevelasshareholdersdebateCarlIcahnsplanforthecompanytoincreasetheirsharerepurchaseby$50billion,whichistobevotedonattheirFeb28thshareholdermeeting?

ThecompanymightbemakingiteasierforIcahnsplantogothrough,asitappearstheyhaveeatenthroughagoodbitoftheirexistingbuybackallotmentof$60billion,buying$40billioninthelast12months。

TheimplicationsforimpliedvolatilityareclearoptionsinAAPLarelikelyasale,especiallyoutafewmonths?

Ifapproved,thecompanysaggressivebuybackwilltemperrealizedvolatility,sincemanagementwillbebuyingthestockonpullbacks?

Meanwhile,moveshigherarelikelytobelessvolatile,asisthenatureofmarketpsychologywhenstocksaremovinghighervs。

whentheyaremovinglower。

However,inourview,theimplicationsforAAPLstockin2014hingemoreonthecompanysinnovationandnewproductannouncementsthanonthebuybacknews?

Thebuybackreducesvolatilemoveslower,butgenuineinvestorinterestinthecompanyismuchbetterstokedbyproductinnovation,especiallyforastockthesizeofAAPL。

Wehavesomethoughtsonthepotentialsignificanceofonerumorednewproductandwellwriteaboutthatsoon。

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OriginalPostFeb5th,2014?

MorningWord2/5/14:Bobbingfor$AAPL?

LastTuesdays8%plungeinAAPLshares,followingtheirdisappointingfiscalQ1resultsandQ2guidance,wastheworstonedaydeclineinmorethanayear?

ButsincethecloseonJanuary28th,thestockhasfounditsfooting,andhasoutperformedtheSPXbyalmost2%。

Whilemanytechnicianshavehighlightedtheapparentdoublebottominthechartlastspring/summer(redcircledbelow),thestockintheneartermappearstobeinabitofaholdingpatternasinvestorslookforanynewsregardingincreasedsharebuybacksand/ordividendsassuggestedbysomelargeshareholders。

ThatthemecouldcomeintoincreasedfocusaswegetclosertoAAPLsFebruary28thshareholdermeeting?

Specificallywearelikelytoseeawarofwords(orTweets)asinvestorsdigestandconsiderCarlIcahnsproposalforthecompanytoincreasetheirsharebuybackby$50billion(readhere)。

(Quickpointaboutupcomingmeeting,whileitwillgrabheadlines,inthelasttwoyearsanynewsaboutincreasedbuybackanddividendshascomeintheweeksfollowingtheevent。

In2012,onMarch19ththecompanyintroducedcapitalreturnplan(here)andin2013,onApril23rdthecompanyannouncedtheirdecisiontoincreasetheexistingplan(here),almost2monthsaftertheshareholdermeeting。

)

TheoneyearchartofAAPLbelowshowsthestocksstabilizationoverthelastweek,atwhatislikelytobeafairlyimportantneartermtechnicalsupportlevelasthereisnorealsupportinthestockuntil$475andthen$450:

AAPL1yrchartfromBloomberg

Sowhythestabilizationasthebroadermarketappearstobefloundering?

Onecouldarguethatthestockmaybeoneofthesafestriskassetsontheplanet,withacurrentdividendyieldof2。

4%andexisting$60billionsharerepurchaseandonethirdoftheir$450billionmarketcapincash?

Ormaybethe4yearlapseinanewproductcategorycouldcausesometospeculatethatsomethingbigiscominginthenextfewquartersasCEOTimCooksuggestedtoemployeesinamemoinDecember。

Thereasonsabovearewellknown,andnotlikelytobethereasonforthispastfewdaysofrelativeout-performance?

Rather,itcouldhavemoretodowithsomeunusualoptionsactivitythatwehavenoticedinthedaysfollowingAAPLsblack-outperiodforshare-buybackspostearnings。

Yesterdaythefollowingtradecaughtoureye:

AAPLdeltaonetradeFeb4th,fromBloomberg

Tobreakitdown,thetraderbought9800March580putsfor75。

90,sold9800March580callsat1。

12,andbought980,000sharesfor$508。

12

Sowhathappenedhere?

Thebuyercreatedwhatappearstobearisklesstransactionasthelongstockiscoveredbylongin-the-moneyputsandshortout-of-the-moneycalls,matchingupthedeltas?

Alongputpositionandashortcallpositionofthesamestrikeandmaturityisessentiallyashortforwardcontractonthatstock(readhereformoreonForwardContracts)?

Whatcouldbetherationaleforthisoffsettingtransactionoflongstock/shortforward?

Itcouldbeabanklockinginfundingforthelongstockpositionatacheaperratethanthebankchargedaclientforfundingasimilarposition?

Andtheclient?

ThatmightjustbeAAPLitself。

ThepointhereisthatthisactivitylikelysuggeststhatalargebankhasenteredintoAcceleratedShareRepurchaseprogram?

withAAPLwherebythebank(s)havecommittedtodeliveringaspecifiedamountofsharestothecompanyinacertainamountoftimeatasortofaveragepriceduringtheperiod?

SowhyistheoptionsactivitythetellthatAAPLisconductinganASR?

Well,ifyouwerealargebankouttherebuyingAAPLsstock,youhaveverylittleriskandyouaregettingpaidhandsomelytodothisbusiness,buttherearealsopotentiallittletricksthatcanmaketheactivitymoreprofitableforthebank。

SowhatdoesitmeanforAAPL?

Theyarelikelybuyingachunkofstockrighthere,whichisbetterthantheaveragepriceoverthelastquarterfromOctobertoDecember31st。

Butmaybe,justmaybeAAPLisfrontrunningCarlIcahnsrequestforincreasedcapitalreturn?

InthequarterendedJune31,2013,AAPLpurchasedatotalof$16billionworthofshares,$12billionofwhichwasintheformofanASR(readhere)?

Inthequarterjustcompletedthecompanyonlybought$5billionworth,andmaybetheyarekeepingtheirpowderdrytobuyonpullbacks,liketheonewejustgot!