AAPL – Apple Computer (Last:117.45)

My friend Steve Gilburne has been trading Apple shares for 20 years and probably knows more about the company than most Wall Street analysts. He thinks earnings due out after the close on Tuesday, October 25, will goose the stock $6-$8 higher, and another $5-$7 in the days that follow — regardless of whether the broad averages are going up, down or sideways. This would put Apple shares at a new ‘equilibrium’ price of about $130, says Steve. He’s been accumulating call options ahead of the announcement but plans to step up his buying on Thursday, October 20, a few days ahead of the news. He will be looking to buy calls with two weeks left on them that are about $1-$2 out of the money, for about $1.50-$1.70. That sounds cheap to me, but he says it’s in line with past experience.

Steve says he’s made a ton of money using this strategy in the past, since Apple rarely disappoints. Why should this continue to hold? He cites three reasons: 1) CEO Tim Cook has continued to improve the company’s already-stellar margins. Cook may not have Steve Jobs’ gift for cutting deals with content providers, or acquiring content giants like Netflix, but his ability to cut costs is exceptional; 2) Apple’s two biggest chip suppliers have already reported strong revenue growth for Q3. In the past, this has always presaged solid revenue growth at Apple; and, 3) Apple’s pricing strategy, which allows customers to painlessly upgrade their iPhones for $30 per month whenever a new one is released, has made the product cycle nearly bomb-proof.  Steve expects his call options to at least double in value. As always, caveat emptor.

On a personal note, let me mention that I HATE Apple and its cult-mongering shtick. The company has ceased to innovate and is becoming increasingly Microsoft-like as it herds customers toward upgrades that barely qualify as such and that many would rather do without. Take iPhone 7, which conspicuously lacks a headphone jack. Apple’s reasons for this sensational omission are pretty lame. They say wireless is the future for such devices. If so, why not let 600 million iPhone users decide when they’re ready to transition. Apple also said the jack-less phone freed up space for a bigger battery. If you think this has actually fixed a problem for which iPhones have always been notorious, just Google “iPhone 7 battery problem.”  iPhone’s punk power solution recalls the Lucas electrical system that drivers of old British sports cars used to curse. It never improved. Did I mention that, just as Apple was releasing iPhone 7, it also offered up a pricey set of wireless earbuds? Apple has thoughtfully provided a clumsy adaptor for wired earbuds and headsets that plugs into the charging slot. 600 million iPhoners will surely appreciate this aftermarket gizmo — overpriced for Apple-worshipers like everything else the company sells. _______ UPDATE (Oct 18, 4:09 p.m.): AAPL has gotten so revved up ahead of next week’s earnings that it’s hard to imagine what its oh-so-canny handlers have in mind when they goose the stock on the actual announcement. Steve Gilburne’s $130 target aside, bulls are having trouble at the moment restraining the stock from leaping to a 125.20 target of my own that comes from the daily chart (where A=102.53 on 9/12). AMZN has been stalled for more than a week at p=118.38 of that pattern, but the resistance doesn’t look like it’s long for this world. If you assume AAPL is going to leap HUGE on earnings no matter how high it gets in the next few days, you need to go to A=73.05 (4/18/14) on the weekly chart to get some new targets. It leaves room for a surge to p2=135.59 — or even D=150.96 (!)