I know I shouldn’t be one to talk. But this piece of news definitely hit home. I have openly argued that Apple’s stock is overpriced. I still believe that. However, I no longer believe that it is so overpriced that you should put your money where your mouth is. I am, of course, talking about shorting the stock.
When you short a stock, you borrow the shares from a broker at a high price and sell it. You wait for the stock to crash and hit bottom, and then you buy the stock back. The price difference between the price you bought the stock back at and the price you originally sold at is the profit. This is how traders make money off falling stocks.
It is very easy to conclude that Apple (NASDAQ:AAPL) is overvalued. It is at the high end of its price-per-earnings ratio. It is not every year that the company will roll out an iPhone 6. Moreover, its recent product initiative, the Apple Watch, isn’t going to add anything dramatically significant to its bottom line. Put all these factors together and it would make sense to believe that the price of Apple will fall.
Well, if you are just looking at the amount of short trades on Apple, don’t get too excited. It appears that a lot of people who believe like I do, and are willing to put their money where their mouth is, are having second thoughts. The short interest in Apple has fallen by 10%. Maybe these are the lucky people who bought Apple at really sky-high rates and then sold out. Or they just took it in the shorts and just want to stem any further hemorrhaging of their investment capital. Regardless, the short interest in Apple has fallen by 10%.
I think this is temporary. Once the picture becomes clear that the iPhone 6 is a relatively rare blip on Apple’s earnings radar, and the market watch earnings and profit projections pan out, expect a huge amount of downward pressure on this otherwise stellar stock.