AAPL with an investment twist

In my previous post regarding Apple, I briefly outlined two simple strategies for trading or investing in the stock. I have traded the options on Apple a few times, profitably, but they are more complicated and not for the faint of heart... at least given the short term trading that I did with them, so I'll skip that particular route.

My current "default" trading is more investment oriented as I am in a few Dividend Re-Investment Plans (DRIPs) so I thought I might spin this a little differently. While there are no dividends with Apple (and I don't blame them as they don't need the dividend spin to push stock any more) the capital appreciation has been substantial on it's own. With dividends the goal is long term dividend growth and re-investment, not so here. With no dividends this means that holding for the long long term may not be the best idea so an exit strategy is necessary. In this case I use a trailing stop order, manually adjusted based on the activity of both the price and  my trading.

Here is the newly annotated chart showing the entry trades with green arrows. Stops are initially set at the short horizontal red lines and moved up as the price moves up and the 200SMA continues trending.

The plan is to scale into the trade in increments. Each time the price nears the 200SMA a new purchase is made. This serves to reduce the risk of getting completely into a trade and having it go South in a hurry. The small entry with a tight stop is built upon gradually. In this case, for use as an example, I figured the valuations based on maximum purchases of $1,000.

Trade entries were made as follows:

8 shares at $120, stop set at $110 (stop loss $80)
5 shares at $200, stop moved to $180 (stop gain $380)
4 shares at $240, stop moved to $220 (stop gain $820)
3 shares at $320, stop moved to $310 (stop gain $2,320)
2 shares at $355, stop moved to $340 (stop gain $2,890)

Note that the stops are only there to catch should the price plummet right after the additional shares were purchased. As soon as the second trade is placed the stop is actually in the money as well, therefore it becomes a profit protection more than a stop loss. 

Adjusted Cost Base (ACB - AKA average price per share) = $208.64
Total invested  = $4,590 (22 shares)
Current price = $402.64
Total value = $8,858.08
Capital gains (on paper) = $4,268.08 or 93%

Here is a two year chart showing the current trend line (green) with the consolidation periods noted with the red lines.

Using the long term trend line as the bottom of each of the triangles, the opportunities for smaller shorter term trades shows up as does the current possible change in trend. Note that the 200SMA has broken the trend line, the consolidation is more pronounced and has it's own lower trend line that coincides with the long term one.In all of the previous trades short selling was not considered as the trend was so obviously up. Now, however, given the change in the pattern I would look at the possibility of short selling as a good short term Counter Trend Position trade assuming that I either sold off the entire long position or had not been trading long term in the first place. You are not allowed to hold long and short trades simultaneously anyway.

Over the next few months I would look for some horizontal price action and perhaps even a shift to a horizontal trading channel to be established. This would have me bring the stop order up to just under the 200SMA or the trend line.

Side note: I toyed with the  idea of "side betting" in just buying a fixed number of additional shares at each purchase point and selling them when the price came within $10 of the upper trend line just to grab a  few extra dollars here and there. Doing this, according to strict rules, produced a little over $600 over the course of the period.

Keeping in mind that this is a small part of any trading plan and not really aimed at producing an income now the overall returns are very good. Of course there could easily be another stock in the portfolio that might not work out so well. Choosing established companies with good records of previous trending can be pretty easy to do. Mix in some dividend producers, short selling and varying the industry mix according to some other interesting plans makes up for the potential for losers.

Jeff.