A Thesis So Silly That I Hestitate to Share it
In 2024, Vibes > Fundamentals.
I originally planned to put this post behind a paywall (without accepting payments) because the thesis is so silly. The goal was to write a pitch with a time stamp so I could refer to it later. But that’s cowardly and even sillier.
In the end, I decided to put this out publicly. I can’t remember ever putting on a trade like this, with practically the full thesis being reading the market, and not the fundamentals. But it would be great to get such a vibe-based trade correct. The next write-up will be my bread and butter - tiny stocks with a catalyst.
I’m long AAPL LEAPS.
Position: Jan16'26 230 CALL
Purchase Date: 18th June 2024
Cost Basis: $25.52
The good thing about holidays is that there’s a lot of time to think. What else is there to do on a beach? The bad thing is that I can’t write up anything for this blog. So I’m writing about a position that is already up 20% since entry. But who cares, with ~0 readers?
I’ve never owned Apple. I’ve never really owned any mega-cap. Apple is literally more than 3,500 times(!) bigger than the median stock in my portfolio. Nothing turns me on more than micro-cap litigations and hated commodity stocks - So what led me to venture into the most over-followed, well-understood company ever?
Let me first state the following:
This is a speculative trade, with little-to-no fundamental analysis
This is one part of a somewhat diversified portfolio
It started when James from jamesbulltard.com noted an insane amount of big money OTM leaps purchased on AAPL, coupled with the stock breaking out. I’m sceptical about technicals, but multiple, large, option trades bunched together are always interesting.
And then I started to think.
Everyone complains about the narrowness of the market, with the magnificent 6 and AI being the only game in town - And even the latter seems to have stalled for now. It might be my biased information diet, but every day I see a new chart about the lack of breadth. “80% of index returns come from 10 stocks”, “most of the stocks in the index have been uncorrelated to the index over the last couple of years”, etc. You know the drill. The point is that a market crash is imminent, as the market is more narrow than at any point in history.
But what if…?
Stan Druckenmiller learned from his mentor that “what’s obvious is obviously wrong”. And if everyone knows a crash is coming due to the narrowing of the market, it might just not unfold as expected.
So what other possibilities are there?
Everything could sort of fizzle out sideways. Or the breadth could improve by the broad indices rallying. Or that one quote from Elon Musk, which keeps repeating in my head, could come true.
The most entertaining outcome is the most likely.
While that is objectively untrue, like 90% of everything he says, I like that quote. One issue, of course, is that I’m not entertained by what you are. And vice versa. But to me, the most entertaining outcome would be the market narrowing and narrowing longer than anyone expects, leading to everyone losing their minds. If this happens, who is left? Who will be the sole beacon holding up the index? Probably Apple.
And I have not been positioned for this at all. Before this, I didn’t own a single stock in the S&P500 and have had a beta to the index of -0.03 in H1, while being net long mind you. While my portfolio has done well thus far, I see this position as a right-tail hedge in case the “Market Breadth Reaper” comes for my longs as well, and narrows the market even further.
“First they came for the equal-weighted index, and didn’t go long the index - Because I was long small caps.
Then they came for the small caps, and I didn’t go long the index - Because I was long the few factors that were working.
Then they came for my longs, and there was nothing but the magnificent seven to own.”
So I’ve added some levered market beta to my portfolio through Apple leaps. Which also could work well if any other scenario plays out. This is one position in a portfolio, and it won’t make or break the bank if reality plays out in this way or any other way.
What adds to the entertainment value is that Apple is somewhat hated. Literally no one thinks Apple is cheap today, trading for something like 30+ PE with zero growth. But I’ve been thinking about this, and I don’t think the absolute value of the mega caps matters in the current market environment - I find them to be incredibly disconnected from reality.
The next section might be stupid and me making things up.
But in the current market environment, it seems like when something big and liquid starts working, it just keeps working. And I think that this process started for AAPL when it popped 8% after the first day of WWDC.
(So maybe I do believe in technical breakouts after all?)
So in such a process, a change in fundamentals (news from WWDC) leads to:
Price increase > increased positioning from momentum + trend following > lower volatility > increased positioning from vol targeting funds > repeat.
It’s beautiful. An intern at McKinsey could probably make a great chart of this circular process.
And don’t forget that Tim Cook and Luca Maestri are super sharp. They are aware of the reflexivity presented above. With 60% and 40% of their respective TC being determined by the TSR of Apple, they are therefore incentivized to keep this going. And they can play their part in keeping this going, by utilizing their endless buyback war chest to reduce downside volatility.
And I almost forgot - A large number of OTM calls triggered this thesis. Market makers will also fuel the fire as delta increases.
If this starts to play out, there will also be buying pressure from funds lagging the benchmark - They don’t want to look stupid for not owning the hot stocks, AGAIN, after missing Nvidia on the way up.
I get that this partly sounds like the insane ramblings of a conspiracy wacko, but it’s easy to see how that could be a virtuous cycle for the stock.
Finally, in recent days as of writing we’ve had a bear steepening, with the index going up at the same time - led by AAPL of course. I think that indicates that the party isn’t over yet.
For fundamental stuff, I don’t have much to comment on. I won’t pretend to have an informational edge when it comes to Apple. However, from WWDC a couple of news for iPhone caught my attention.
The AI photo editing was cool, and will probably be a must-have for anyone who mainly lives their lives online. And that’s a lot of people.
I think the prompt-based emoji generator could generate some initial hype. Online people have an insane need to show how unique they are but also to show which tribes they belong to. Custom emojis are a godsend for these people. It will probably be a fad, but it could probably pull forward some sales.
Most importantly: Having a much improved Siri and AI re-writing available in any text editing could be huge. In my opinion, the new iPhone will be the first real accessible, tangible, consumer AI product. ChatGPT was all right, but now you pull up the device you always have on you, and the AI is just there. No need to access certain apps/web pages.
As Apple Intelligence (lol) is only available on the iPhone 15 Pro and Pro Max, it’s predicted by some analysts that these changes could drive an upgrade super cycle for the iPhone. But Apple will still beat the estimates from the same analysts because that’s how the game is set up.
Mega caps are so stupid. 80% of what matters is if the current stock narrative is relevant for the current cool thing. 20% is if they are beating the quarterly buyside bogey. Given that Apple finally gives us some AI that seamlessly integrates into and improves our day-to-day lives, Apple’s AI should probably be the cool thing over the next 6-9 months.
Apple has plenty of risks, including China dependence. In a broad market decline, Apple should do better than most other stocks, but less downside is not really what I’m playing for given the use of options. And the relative performance of megacaps compared to the rest could invert, which I believe would be good for my portfolio overall.
AAPL could go anywhere from here, and it doesn’t matter that much as it’s only one of multiple positions. This is not a high conviction idea. The main purpose of the trade is to make my portfolio (both words bolded for a reason) less fragile relative to the benchmark if certain scenarios were to happen.
Don’t take anything I write as investment advice, do your research to figure out what makes sense for your portfolio.
The next pitch will be a fundamental story with a catalyst, and not more vibe-based gobbledygook. I’m looking forward to that.
Signed,
Reluctant Apple long