Seven reasons why the shorts love Apple stock

Apple Online Store“A common sense interpretation of Apple (AAPL) fundamentals leads most investors to conclude that this stock should go straight up. Mac sales were up 74% in October and November, the iPhone is on track to have its first quarter of unit sales of 10 million, the iPod Touch continues to gain market share among gamers, the Tablet will be released in 2010. But for some reason, the stock sits dormant in December; if only investing were so easy,” Jason Schwarz writes for TheStreet.com.

“Common sense wins in the long run, but the short run can be dominated by sophisticated trading strategies that test your conviction,” Schwarz writes. “Apple happens to be the investment vehicle of choice, not only for the longs but the shorts as well. For many of the same reasons you love Apple stock, the shorts do, too.”

Here are seven reasons why investors love to short Apple:
1. Apple is the market leader
2. Apple always bounces back
3. The predictability of Apple reduces a short’s risk
4. New media have changed the game
5. Apple secrecy
6. Apple innovation
7. Steve Jobs is the visionary of the century

Schwarz writes, “These seven reasons make Apple an ideal short play for sophisticated traders who want to make money coming and going. The chaos of it all can cause individual investors to become frustrated with the volatility.”

Full article – recommended – here.

17 Comments

  1. of course the SEC was started up partly in order to stamp out wash trading, a form of legal fraud which was made illegal, only after a certain Bostonian had made millions from it. You buy a whole lot, the stock moves up, then you dump what you bought at higher prices than you paid, and the suckers who bought in on the way up lose their pants. That’s like a big wave in the ocean, a wash as it were. Hedge funds do the same thing, and the SEC might as well fold its tent as long as market manipulation in the form of unlimited short trading is allowed. If short trading was made illegal, what would happen to the big bonuses on Wall Street? Given the lack of confidence in the U.S. financial system and the U.S. dollar, it’s high time to instill confidence in the market. Start by outlawing short trading and watch the fun.

  2. …”You buy a whole lot, the stock moves up, then you dump what you bought at higher prices than you paid, and the suckers who bought in on the way up lose their pants”

    What you describe here is the fundamental principle of trading stocks. Buying low and selling high. You buy AAPL in 2005 for $60, then sell in 2007 for $180. You pay your taxes on that profit, and the person you sold it to hopes they’ll be able to sell to someone else for $280, or whatever.

    Selling short isn’t necessarily evil either. What IS evil is naked short sale. Ordinary short sale requires you to borrow shares of stock from someone else, then sell those shares. At a later date, you buy them back (hopefully, at a lower price), return them to the original owner and pocked the difference. Naked short sale is when you sell shares of stock you haven’t really borrowed. Many brokerages often commonly accept short sell orders without bothering to match them with actual shares to be borrowed. This is usually because they assume they will always be able to buy the sold shares back. This is most commonly done when markets are falling, because it is very easy to buy back shares when everyone is selling. What happens here is, when there is no requirement to actually find shares to borrow before selling short, many more can just sell short without ever actually producing (or accounting for) the shares they sold short. A situation can even occur where the total number of shares sold in a day may exceed the total number of outstanding shares for a stock. Obviously, the ability to make a short sale without borrowing shares makes it much easier for stocks to fall even more rapidly, once that selling sentiment becomes prevalent.

    When an actual, accountable share of stock is considered, for every transaction, there is a buyer and a seller. However, things get out of whack when there is a transaction, a buyer and a seller, but the share is actually missing.

  3. I hope to pick up some more shares for my grand kids. I think with just the few shares they already have, their college will be covered in 15 years. How about that first car or wedding dress. Or a few trips to see their grand parents who retired well with their AAPL stocks.

  4. its not that this year it is holding steady. it is that in previous years, the stock went up because of the upcoming Macworld announcement. no Macworld this year. so rumors aren’t as loud and crazy.
    but you can bet if Apple has a media event of their own and announces the tablet or a new Mac Pro with i9 or whatever rumor you want to follow, the price will go up. maybe only for a few days but it will jump hard.

  5. @Predrag — Your post is why there should be a rep system on this site. As it is, I’ll give you a “awesome post, dude!”

    There’s nothing inherently wrong with selling short. Just require the actual borrowing of shares and bring back the uptick rule.

    ——RM

  6. One reason not mentioned is that AAPL tends to fluctuate twice as deeply as other tech stocks, even if there is no reason at all.

    <digression>I still remember that, a few years ago, AAPL stock tanked upon the news that Intel arithmetic units obtained incorrect results for certain combinations of arguments: but at the time AAPL still was using the PPC. APPL stock should have gone up then, because it DIDN’T have the flaw. </digression>

    With bigger short time fluctuations, more gains can be made by the short traders, especially if they control the media machine and actually fabricate the fluctuations themselves. That’s even more criminal than using inside information.

  7. What I want to know is, how does the market know when I’ve put in a trailing stop at 5%, so it drops to just my mark, I get sold out, then it bounces back up rapidly. Same thing if my stop is at 8% or 12%. It KNOWS, I tell you.

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