Good Bet on AAPL/RIMM Paired Trade and Lottery Ticket

My paired trade of long-AAPL-short-RIMM is going to pay handsomely tomorrow as RIMM dropped 20% after hours. I’m going to take my profit tomorrow and put maybe about half of it toward my I-don’t-care-if-I-loss-it-all fund. I’m going to keep a small position on AAPL since I believe the market risk has subsided a little bit and I do believe Apple with tons of cash can and will eventually come of this economic downturn as a winner.

My lottery ticket FNM is also going pretty well. FNM is trading close to $2 the level I was hoping for.


Is Apple (AAPL) a Buy?

Apple released new iPods and updates to iPhone. Stock down more than $6 or 4%. Is AAPL a buy at this point?

The answer is YES and NO. Yes, I believe AAPL is going to outperform the market in the 3-9 month horizon. No, I don’t think the market is heading to the up side very quickly very soon, and AAPL can easily go down with the market. I want fast money, I don’t like carrying trade that “requires” more than 9 months to realize any gain.

In normal days I might just sell some AAPL puts, but in this market, selling any kind of naked option is just crazy talk, I don’t have that kind of capital to trade like that.

So how do I trade AAPL? I will do a simple pair trade – long AAPL and short something to hedge the market risk. The long AAPL part is easy – either buy the underline equity (AAPL stock) or 3-9 month call options. How to hedge gets tricky. I need to put more thought into it, but just thinking out loud…shorting RIMM as the hedge might work. I have three things going for me in this AAPL/RIMM pair trade. First of all, RIMM is trading at 36 P/E vs. 29 for AAPL. From what I heard, RIMM’s grow story is over. RIMM can not break into the consumer market like they did in the corporate world. No high growth, no high P/E, lower stock price is coming. Second, if consumers stop buying shiny new phones every 6 months and the cell phone makers stock tanked, guess who got hurt the most? You’re right, the high P/E ones. Third, Research In Motion is a Canadian company. That by itself is a handicap. You know I’m just joking about the third point, eh? Joking aside, I think the strength of Canadian Dollar (CAD) may not hurt RIM in the short run but it certainly doesn’t help RIM in expanding markets outside of North America in the long run.