Reluctantly Closing A Long Apple ($AAPL) Position

By: ispeculatornew
Date posted: 04.28.2014 (3:00 am) | Write a Comment  (0 Comments)

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$AAPLA couple of years ago, I decided, after feedback from many of you, to let my winning trades ride a bit longer. I do still stick to my -20% stop loss limit but have been more flexible with winners and overall that has worked out extremely well. This morning I’ll be closing a trade that has been above the +20% “limit” for a little while. It was my first trade of the year and (by far) my highest conviction trade.

On January 7th, I went long Apple (AAPL) and shorted Rackspace (RAX). I believed strongly in the trade and that belief has only gotten stronger since then. Why? I generally do my long & short trades based on stocks that pair well against each other but this was a case of holding the stock that I liked the most (in terms of risk vs reward) vs a stock that I continue to believe is overhyped.

Apple delivered strong results last week and had a nice bump. I do think it will go a lot higher though and will certainly keep my long term speculative position which is much more significant. I’ll write more about Apple soon (it’s been a while) but it continues to look like a no-brainer. Are there some concerns? Yes, but from a valuation perspective, this screams “winner”.

$RAXRackspace on the other hand is a great company in an exploding field. You’d think that could justify its high P/E ratio. It just doesn’t. Everything related to cloud based hosting will be a very tough environment. Facing competition from the likes of Amazon (AMZN), Microsoft (MSFT), Google (GOOG) and others is just not going to be a good proposition. These players are ready:

-deploy billion $ investments to build
-play the very long term (read decades) game
-offer pricing that is barely break-even (Amazon does that for much of its business while others are simply trying to gain competitive positioning)
-have existing relationships with virtually all of the existing and potential RAX clients

Yes, Rackspace’s offering is not identical or even that close to what those players offer. But their pricing has a big influence on what RAX can charge its customers, they are also fighting for the same talent, etc. Cloud is the future, but it’s a very low-margin one.

Why Close The Trade Then?

As of Friday’s close, this trade stands at +40% and at this point I’m ready to take the gains and re-evaluate. I do follow Apple very closely and can tell you right now that I’ll take a new position soon but I do need to do more homework on RAX before shorting it again. I’ll take a week to go over things and then get back into it with what could be the same trade again, we’ll have to wait and see.

AAPL Chart

AAPL data by YCharts

Things continue to look promising for the long & short trades as the average trade has returned 9.85% this year, far above my “target” return for these trades. You can see those trades here:

Disclaimer: Long Apple (AAPL) and short Rackspace (RAX)

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