Options Action

I Have Seen This Before

Growing up, I was a huge fan of The Peanuts, especially when Lucy would hold a football out for Charlie Brown, only to pull it away and cause Charlie to fall.

A similar dynamic is taking place with Apple shareholders and the closely-followed Developers Conference. The stock sold off today, but that is not particularly surprising given the fact that in the past 2 years, Apple shares have fallen 8% in the weeks after the conference. Yet, in both cases, we saw the stock have a huge run-up going into the conference.

Today, everyone's favorite Tech Titan unveiled a new 3G S iPhone that can pretty much do anything (access the web faster, record video, cook leg of lamb), reduced prices for its existing iPhone, and yet the stock was down as much as 3% today.

It seems only Madonna can top the iPhone in the hype department.

"Everything that was expected came out," said Morgan Keegan's Tavis McCourt (OUTPERFORM). "Everything is sort of leaked out heading into these events, so today's selling was not really unexpected," Tavis added.

By now, some Apple shareholders must be wondering why they keep falling for it. On Friday's "Options Action," budding cable news sensation Dan Nathanwondered the same thing, and he suggested doing something that is practically unheard of on financial news: sell shares of Apple.

Of course, no one can just give up all exposure to Apple. After all, the laws of physics don't really apply to the company. They just tend to exert influence from time to time. So Dan suggested doing what's called a stock replacement strategy, where investors sell stock and retain exposure through buying options. In the case of Friday's show, Dan recommended buying the Apple June 145/155 Call Spread for a total of $3 bucks. The trade allows him to be long Apple up to $155, but more importantly, by selling his stock, he no longer has to go through gut-wrenching days like today.