chinacat
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AAPL Long since 2006
Posts: 4,429
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Post by chinacat on May 6, 2015 10:42:08 GMT -8
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Post by nagrani on May 6, 2015 10:45:58 GMT -8
Too tempting. Jumped back in. 2016 calls. Wondering if market will let apple close out strong given divvy
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4aapl
Moderator
Posts: 3,635
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Post by 4aapl on May 6, 2015 10:56:47 GMT -8
Could anyone please help? I just received a scary note from my broker, regarding the position below (bull call spread with strikes 92.86/100 which I've held for over a year) Position: cloudup.com/cCwPdTW7zxc"This email is to inform you of the potential dividend risk associated with your short call option position in Apple Inc (AAPL) which is trading ex-dividend tomorrow, May 7, 2015. If assigned, you will be short stock as of May 6, 2015, and therefore responsible to PAY the dividend on the dividend pay date." I'm not sure if I should try to sell or what. Any non-advice is much welcome. I'll act on my own behalf for sure. So, you get this because you are short a call that is in the money. A year ago I would say don't worry about it, especially since it still has $2.36 of premium (price - (AAPL price - strike price). That premium is made up of the time value and the volatility value. The problem is that the dividend is now .52/quarter. Someone might find that tempting, whether they are just trying to sneakily capture the dividend, or if they really want to go ahead and convert to shares, and might as well do it before the dividend. But 4 times last year, twice with AAPL at the same time in August, and twice with SPY, I had my short side called away right before the dividend. It might be ok with small amounts, but one of those was for 700 calls as part of a bull call spread (100 pre-split). That meant that I suddenly sold 70,000 shares of AAPL, and so was short the difference of that and the number of shares I held in the same account the day previous, and so was short a 5 figure amount of shares. While I still had the corresponding 700 long calls, I was now not as covered to the downside and I owed the dividend on those shares. I rebought as soon as I could, but that was too late for the dividend and it reset my holding date for tax purposes. (Plus I had good sized gain, though that canceled out with a loss from the previous year) (BTW, Pub 550 tells how to deal with this for taxes, which TD Ameritrade didn't do automatically and instead listed in "various expenses". Search for "Payments in lieu of dividends") With that background, I'd be most worried about this when the option premium is around the value of the dividend. I was holding Oct's in August, so the premium was small, but I don't know what it was exactly offhand. But just because the premium is much more than the dividend doesn't put you in the clear. For me, I went ahead and sold other ITM spreads before the next dividend. For one, the spread was valued at something like 2.77 out of a max of 2.87 (gotta love that split), so I decided to just sell it. (looks like you still have 1.39 of potential on a 7.14 spread) Good luck, and let us know what you decide and/or what happens.
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Post by incorrigible on May 6, 2015 11:08:17 GMT -8
IMHO we are starting a bear market. Nothing AAPL can do but follow. Apple can, however, buyback shares cheap. Two down days and it's the start of a bear market? Isn't a that a tad premature? Of course, the media clangs such bells on each down day. We're long overdue. S&P P/E ratio hovering at 20. 15 or so is the mean. Again, just my humble opinion. Nothing more. I'm not selling all. Just lightening and realigning.
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Post by bribery on May 6, 2015 11:21:07 GMT -8
Could anyone please help? I just received a scary note from my broker, regarding the position below (bull call spread with strikes 92.86/100 which I've held for over a year) Position: cloudup.com/cCwPdTW7zxc"This email is to inform you of the potential dividend risk associated with your short call option position in Apple Inc (AAPL) which is trading ex-dividend tomorrow, May 7, 2015. If assigned, you will be short stock as of May 6, 2015, and therefore responsible to PAY the dividend on the dividend pay date." I'm not sure if I should try to sell or what. Any non-advice is much welcome. I'll act on my own behalf for sure. So, you get this because you are short a call that is in the money. A year ago I would say don't worry about it, especially since it still has $2.36 of premium (price - (AAPL price - strike price). That premium is made up of the time value and the volatility value. The problem is that the dividend is now .52/quarter. Someone might find that tempting, whether they are just trying to sneakily capture the dividend, or if they really want to go ahead and convert to shares, and might as well do it before the dividend. But 4 times last year, twice with AAPL at the same time in August, and twice with SPY, I had my short side called away right before the dividend. It might be ok with small amounts, but one of those was for 700 calls as part of a bull call spread (100 pre-split). That meant that I suddenly sold 70,000 shares of AAPL, and so was short the difference of that and the number of shares I held in the same account the day previous, and so was short a 5 figure amount of shares. While I still had the corresponding 700 long calls, I was now not as covered to the downside and I owed the dividend on those shares. I rebought as soon as I could, but that was too late for the dividend and it reset my holding date for tax purposes. (Plus I had good sized gain, though that canceled out with a loss from the previous year) (BTW, Pub 550 tells how to deal with this for taxes, which TD Ameritrade didn't do automatically and instead listed in "various expenses". Search for "Payments in lieu of dividends") With that background, I'd be most worried about this when the option premium is around the value of the dividend. I was holding Oct's in August, so the premium was small, but I don't know what it was exactly offhand. But just because the premium is much more than the dividend doesn't put you in the clear. For me, I went ahead and sold other ITM spreads before the next dividend. For one, the spread was valued at something like 2.77 out of a max of 2.87 (gotta love that split), so I decided to just sell it. (looks like you still have 1.39 of potential on a 7.14 spread) Good luck, and let us know what you decide and/or what happens. This is why I love the internet! I just spent 20 minutes with Schwab on the phone, and your explanation was 10x better. I think I'm going to leave it as is for now and hope it doesn't get called away. I would have sold if it were closer to the full potential (as it was a week ago), but there's still room for growth and the premium to dividend ratio seems to be in my favor. Thank you!!!
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Post by archibaldtuttle on May 6, 2015 11:26:39 GMT -8
What's the point of the dividend again? Ex-dividend day, drop thru recent support. Blech.
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Post by tuffett on May 6, 2015 11:32:09 GMT -8
AAPL now slightly beating the Nasdaq, after being down 2-3x earlier on. Nice to sell a little relative strength. Silver lining?
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mark
fire starter
Posts: 1,552
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Post by mark on May 6, 2015 11:43:25 GMT -8
Could anyone please help? I just received a scary note from my broker, regarding the position below (bull call spread with strikes 92.86/100 which I've held for over a year) Position: cloudup.com/cCwPdTW7zxc"This email is to inform you of the potential dividend risk associated with your short call option position in Apple Inc (AAPL) which is trading ex-dividend tomorrow, May 7, 2015. If assigned, you will be short stock as of May 6, 2015, and therefore responsible to PAY the dividend on the dividend pay date." I'm not sure if I should try to sell or what. Any non-advice is much welcome. I'll act on my own behalf for sure. So, you get this because you are short a call that is in the money. A year ago I would say don't worry about it, especially since it still has $2.36 of premium (price - (AAPL price - strike price). That premium is made up of the time value and the volatility value. The problem is that the dividend is now .52/quarter. Someone might find that tempting, whether they are just trying to sneakily capture the dividend, or if they really want to go ahead and convert to shares, and might as well do it before the dividend. But 4 times last year, twice with AAPL at the same time in August, and twice with SPY, I had my short side called away right before the dividend. It might be ok with small amounts, but one of those was for 700 calls as part of a bull call spread (100 pre-split). That meant that I suddenly sold 70,000 shares of AAPL, and so was short the difference of that and the number of shares I held in the same account the day previous, and so was short a 5 figure amount of shares. While I still had the corresponding 700 long calls, I was now not as covered to the downside and I owed the dividend on those shares. I rebought as soon as I could, but that was too late for the dividend and it reset my holding date for tax purposes. (Plus I had good sized gain, though that canceled out with a loss from the previous year) When I was assigned a bunch of shares (on the short leg of a bull call spread) on dividend day in August 2014, instead of allowing the broker to use my existing shares to cover the short share position left by the exercised option, I instructed them to buy that number of shares the next day. And they did. But, obviously, I had to pay the dividend on those short shares. Then, the next quarter (November dividend day), I closed out the long end of that spread by exercising the option on ex-div day and received the dividend on those shares. So I ended up "even" as far as dividends are concerned. In addition, of course, it made economic sense (by a few cents if I recall) to exercise those options. It also turns out to have been a terrific choice because I bought all those shares (to cover the exercise) at $95 and effectively still hold all those shares. I'm looking at my Jan '16 71.43/85.71 (500/600) BCS and it looks kind of worrisome. I don't know why there isn't a bit more time premium in this options? The short 85.71s are trading at 39.37 right now, so 39.37 + 85.71 = 125.08 minus the current stock price of 124.88 is only 0.20 or less than the dividend! What to do? I wonder if I should just buy back those short options and go naked long for the duration? What say y'all?
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Post by macglenn on May 6, 2015 11:46:15 GMT -8
Can anyone explain why the volume of trading in AAPL is 10X-30X that of other big tech stocks and I'm accounting by trading value not shares?
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mark
fire starter
Posts: 1,552
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Post by mark on May 6, 2015 11:46:17 GMT -8
What's the point of the dividend again? Ex-dividend day, drop thru recent support. Blech. I really don't like dividends. I'd rather have all that cash used for buybacks instead. I MUCH prefer being able to CHOOSE myself when to take gains (and thus also choose when tax becomes due) from a position. A dividend takes that choice away from you. And to make matters worse, dividends also distort options to an extent.
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4aapl
Moderator
Posts: 3,635
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Post by 4aapl on May 6, 2015 11:46:33 GMT -8
I just spent 20 minutes with Schwab on the phone, and your explanation was 10x better. I think I'm going to leave it as is for now and hope it doesn't get called away. I would have sold if it were closer to the full potential (as it was a week ago), but there's still room for growth and the premium to dividend ratio seems to be in my favor. Thank you!!! You're welcome! Sadly, like the behavior of the stock after good to great earnings, you can't expect people on the other side of your short call to always behave logically. So it's not just a "at this level it should be ok". BTW, this is why some people prefer bull put spreads over bull call spreads for spreads that would be ITM with calls. Personally I haven't bought any of those yet, but I need to look into them. Instead I've been being a little more bullish on the short side, such as buying '17 120-160 bull call spreads instead of 120-150's. If I end up selling the -160's early due to the short side being ITM, I should have more total gain than if I held the -150's all the way to expiration. Of course it also means the spread cost more upfront, which then changes the potential gain percentage. But I'm not buying anywhere as much as I once did, so it doesn't matter as much....and I'm also being a lot less bullish than previously, so this cancels out a bit. Wow, AAPL is sure moving today. I'm searching a little, but haven't found the spread that's calling my name yet. This is the uneven ground, where the stock might rebound quickly, or it might drop down another $5-10 for no reason. But dipping your foot in gives you something either way.
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Post by tuffett on May 6, 2015 11:50:42 GMT -8
So, you get this because you are short a call that is in the money. A year ago I would say don't worry about it, especially since it still has $2.36 of premium (price - (AAPL price - strike price). That premium is made up of the time value and the volatility value. The problem is that the dividend is now .52/quarter. Someone might find that tempting, whether they are just trying to sneakily capture the dividend, or if they really want to go ahead and convert to shares, and might as well do it before the dividend. But 4 times last year, twice with AAPL at the same time in August, and twice with SPY, I had my short side called away right before the dividend. It might be ok with small amounts, but one of those was for 700 calls as part of a bull call spread (100 pre-split). That meant that I suddenly sold 70,000 shares of AAPL, and so was short the difference of that and the number of shares I held in the same account the day previous, and so was short a 5 figure amount of shares. While I still had the corresponding 700 long calls, I was now not as covered to the downside and I owed the dividend on those shares. I rebought as soon as I could, but that was too late for the dividend and it reset my holding date for tax purposes. (Plus I had good sized gain, though that canceled out with a loss from the previous year) When I was assigned a bunch of shares (on the short leg of a bull call spread) on dividend day in August 2014, instead of allowing the broker to use my existing shares to cover the short share position left by the exercised option, I instructed them to buy that number of shares the next day. And they did. But, obviously, I had to pay the dividend on those short shares. Then, the next quarter (November dividend day), I closed out the long end of that spread by exercising the option on ex-div day and received the dividend on those shares. So I ended up "even" as far as dividends are concerned. In addition, of course, it made economic sense (by a few cents if I recall) to exercise those options. It also turns out to have been a terrific choice because I bought all those shares (to cover the exercise) at $95 and effectively still hold all those shares. I'm looking at my Jan '16 71.43/85.71 (500/600) BCS and it looks kind of worrisome. I don't know why there isn't a bit more time premium in this options? The short 85.71s are trading at 39.37 right now, so 39.37 + 85.71 = 125.08 minus the current stock price of 124.88 is only 0.20 or less than the dividend! What to do? I wonder if I should just buy back those short options and go naked long for the duration? What say y'all? Your time premium is low because it's extremely unlikely AAPL sees 85.71 in the next 9 months. Your spread is pretty much at full value. I would close the trade if I were you - don't have worry about dividend shenanigans and you can free up some margin/cash.
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mark
fire starter
Posts: 1,552
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Post by mark on May 6, 2015 12:00:17 GMT -8
When I was assigned a bunch of shares (on the short leg of a bull call spread) on dividend day in August 2014, instead of allowing the broker to use my existing shares to cover the short share position left by the exercised option, I instructed them to buy that number of shares the next day. And they did. But, obviously, I had to pay the dividend on those short shares. Then, the next quarter (November dividend day), I closed out the long end of that spread by exercising the option on ex-div day and received the dividend on those shares. So I ended up "even" as far as dividends are concerned. In addition, of course, it made economic sense (by a few cents if I recall) to exercise those options. It also turns out to have been a terrific choice because I bought all those shares (to cover the exercise) at $95 and effectively still hold all those shares. I'm looking at my Jan '16 71.43/85.71 (500/600) BCS and it looks kind of worrisome. I don't know why there isn't a bit more time premium in this options? The short 85.71s are trading at 39.37 right now, so 39.37 + 85.71 = 125.08 minus the current stock price of 124.88 is only 0.20 or less than the dividend! What to do? I wonder if I should just buy back those short options and go naked long for the duration? What say y'all? Your time premium is low because it's extremely unlikely AAPL sees 85.71 in the next 9 months. Your spread is pretty much at full value. I would close the trade if I were you - don't have worry about dividend shenanigans and you can free up some margin/cash. Don't need to free up margin/cash. And would like to capture the rest of the play ... why leave 0.65 on the table?
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mark
fire starter
Posts: 1,552
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Post by mark on May 6, 2015 12:06:47 GMT -8
Wow, AAPL is sure moving today. I'm searching a little, but haven't found the spread that's calling my name yet. This is the uneven ground, where the stock might rebound quickly, or it might drop down another $5-10 for no reason. But dipping your foot in gives you something either way. I found one spread that I picked up today, some Jan '17 120-140 BCS for a potential 150% gain or so at full value. BTFD ... as usual. [ADDED later: Ha. I just noticed that I already owned some Jan '17 120 calls. Well ... now I own more of them. What do you call a BCS where you own more of the long call and less of the short call?]
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4aapl
Moderator
Posts: 3,635
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Post by 4aapl on May 6, 2015 12:16:46 GMT -8
Don't need to free up margin/cash. And would like to capture the rest of the play ... why leave 0.65 on the table? I used to think that way too. And then I paid someone a 5 figure amount for a dividend, instead of getting a 5 figure amount. It can bend your perspective a bit. Looks like the closing price (maybe....I forget if yahoo's option chains are still delayed) on closing that spread would be 73 cents below full value, though the opening premium is only 3 cents. An order there in the middle, say leaving just 30 cents on the table, might take. (and often bid/ask spreads expand at opening/closing IMO, so you might be even better off) If it wasn't called away this time, I'd personally look for closing it in 90 days, leaving only 20 cents or so on the table. To me that would be well worth it, and if you still want risk you could roll it forward into a different spread. Good luck
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Post by rezonate on May 6, 2015 12:17:39 GMT -8
Holy BTFD, Nite Owl. That's what I get for packing out my attic. Health App/Watch logged 88 flights of stairs so far... Of course it does not log any distance *down*, just up. Switched to stair stepper workout mode. Watch out below.
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Post by nathanstevens on May 6, 2015 12:18:46 GMT -8
I finally realized how silly I was being about iCloud storage the other day. I had the 20 GB package and was being nagged to upgrade. For just $4/month I now have 200GB and won't have to worry about failed backups or storage issues for the foreseeable future.
Quick survey: How many others have come to the same conclusion and realized that this is a pretty small price to pay for simplicity?
I also subscribe to Beats for $10/month, HBONow for $15/month, Netflix for $8/month and am anxiously waiting to see what other channels will be offered for chord cutters.
I'd imagine that there are more than a few others in a similar boat.
"Services" has the potential to be quite a juicy revenue stream for the foreseeable future.
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4aapl
Moderator
Posts: 3,635
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Post by 4aapl on May 6, 2015 12:21:59 GMT -8
Wow, AAPL is sure moving today. I'm searching a little, but haven't found the spread that's calling my name yet. This is the uneven ground, where the stock might rebound quickly, or it might drop down another $5-10 for no reason. But dipping your foot in gives you something either way. I found one spread that I picked up today, some Jan '17 120-140 BCS for a potential 150% gain or so at full value. BTFD ... as usual. Nice! Just before closing I looked at Jan '16 115-140's, or Jan '17 120-150's. It's nice to have a breakeven so close to the current price, and yet over 100% potential gains at reasonable valuations. But when I finished looking, the market had just closed. Another option for a shorter term play is June 5th ATM's for a ~100% gain potential. Not too much better than gambling, but at least it's nearly a month out with a WWDC to back it up with some rumors. Tempting, for a small amount of fun money. Oct's are tempting too. Lots of options on options...
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mark
fire starter
Posts: 1,552
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Post by mark on May 6, 2015 12:35:46 GMT -8
Don't need to free up margin/cash. And would like to capture the rest of the play ... why leave 0.65 on the table? I used to think that way too. And then I paid someone a 5 figure amount for a dividend, instead of getting a 5 figure amount. It can bend your perspective a bit. Looks like the closing price (maybe....I forget if yahoo's option chains are still delayed) on closing that spread would be 73 cents below full value, though the opening premium is only 3 cents. An order there in the middle, say leaving just 30 cents on the table, might take. (and often bid/ask spreads expand at opening/closing IMO, so you might be even better off) If it wasn't called away this time, I'd personally look for closing it in 90 days, leaving only 20 cents or so on the table. To me that would be well worth it, and if you still want risk you could roll it forward into a different spread. Good luck I am letting the tax tail wag the investment dog in this case. That 71.43/85.71 spread is quite old (mostly of 2013 vintage) and the long leg has a huge amount of long-term capital gain in it. Meanwhile, the short leg has a huge amount of short-term capital loss in it. The idea is to dispose of the short leg during 2015 using it to soak up all my short-term capital gains for 2015 (and I am actively doing things to have short-term capital gains *this* year). And then to dispose of the long leg during January 2016 which will delay the taxation of those gains AND will enable me to do better tax planning of balancing long-term gains with long-term losses (rather than causing a long-term gain to balance a short-term loss losing part of the tax advantage). Did I explain that properly? (heck, I might be completely wrong about it, but I think I am right about the technical tax details) As far as rolling forward, I'm always doing that, but I usually prefer to do it after a big drop in stock price, or when the next set of LEAPs appear (not right away of course because they are always too expensive when they first appear).
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Post by mace on May 6, 2015 12:38:51 GMT -8
Could anyone please help? I just received a scary note from my broker, regarding the position below (bull call spread with strikes 92.86/100 which I've held for over a year) Position: cloudup.com/cCwPdTW7zxc"This email is to inform you of the potential dividend risk associated with your short call option position in Apple Inc (AAPL) which is trading ex-dividend tomorrow, May 7, 2015. If assigned, you will be short stock as of May 6, 2015, and therefore responsible to PAY the dividend on the dividend pay date." I'm not sure if I should try to sell or what. Any non-advice is much welcome. I'll act on my own behalf for sure. Dividends = Share price + P - Strike - C 52 cents < $125.01 + $2.84 - $100 - $27.05 So not likely to get assigned
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4aapl
Moderator
Posts: 3,635
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Post by 4aapl on May 6, 2015 13:08:45 GMT -8
Did I explain that properly? (heck, I might be completely wrong about it, but I think I am right about the technical tax details) Makes sense, so basically if you can't match your short term losses this year, you have next year to do it too. I did the opposite of that a few years ago, taking the profits on the long side, trading them in for roughly similar (but not the same, since it was within 30 days of expiration) calls. That got some LTCG at lower rates (before they rose). Alas, the stock continued to drop, and I ended up with a huge gain one year and huge loss the next, which is generally a bad idea for taxes and also hits you psychologically. But if talking about very large numbers, be careful of the straddles rules. As far as I can tell, both from the IRS pubs and from "Capital Gains, minimum taxes", options spreads seem like they should follow the IRS straddles rules. At the same time, I don't see people complaining about this, and even with brokerages now having to report both sides of the trade, it doesn't seem like they are following this. Either I am misreading the IRS rules and the book is wrong, or the IRS just isn't enforcing this. If I was dealing with very large numbers I would be worried about this. Not being quite there, and not having anyone get after me to do things differently, I'm happy to just follow what the brokerages are reporting to the IRS and how they are doing it. If anyone has any info on that, or why the straddles rules wouldn't be applicable, I'd be happy to hear. I'd rather know, than get blindsided like I was when short calls from a BCS were called away for dividend harvesting.
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Post by rezonate on May 6, 2015 13:46:57 GMT -8
Quick survey: How many others have come to the same conclusion and realized that this is a pretty small price to pay for simplicity? "Services" has the potential to be quite a juicy revenue stream for the foreseeable future. While I follow your logic, and agree that $4/month or $1/week is a pretty good value, I'm old school. I have thousands of dollars tied up in hard drives and hardware, and wifi sync of my iOS devices to a resident Mac works just fine. The Macs are backed up to a networked Drobo in the basement with Time Machine. Critical files are saved to a File Transporter, which mirrors them across all Macs, the Transporter in the basement and another Transporter offsite. For somebody with just 1-2 iOS devices and no established infrastructure ("college kids", "ultra-mobile professionals"), renting space on Apple's servers is probably a super-smart choice.
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benoir
fire starter
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Posts: 1,318
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Post by benoir on May 6, 2015 14:18:07 GMT -8
I finally realized how silly I was being about iCloud storage the other day. I had the 20 GB package and was being nagged to upgrade. For just $4/month I now have 200GB and won't have to worry about failed backups or storage issues for the foreseeable future. Quick survey: How many others have come to the same conclusion and realized that this is a pretty small price to pay for simplicity?..... I'd imagine that there are more than a few others in a similar boat. "Services" has the potential to be quite a juicy revenue stream for the foreseeable future. Came to exactly the same conclusion yesterday for exactly the same reasons- upgraded to 200GB. Nice not having to worry about it for the next few years.
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Post by 2centsplus on May 6, 2015 22:25:11 GMT -8
What I am afraid of is WS sees Apple growing in the next few years @ only 13 - 14%. Then a PEG of 1.0 would mean AAPL would drop down in the range of $110. (110/8.09)/13.5 = ~1.0 What say the EW experts? Is $110 on one of the fib ranges? Wall Street is so short sighted. China sales growing and will continue to grow. Europe iPhone sales are increasing rapidly. India is yet a very untapped market along with South America. Apple Watch won't be a game changer but will add to revenue and bottom line, probably add incrementally to iPhone sales. Apple TV might not be a game changer, but at minimum will add incrementally, possibly significantly. Mac sales continue to defy the declining market. Services will increase $ to the bottom line, where to begin? And now we find out Apple developed a web crawler, are they looking at a search engine across platforms? Excellent points. Think this is why we make $ on aapl. It's always in show-me mode with a low PE because no one thinks it will keep growing. And yet, much to the surprise of everyone except us apparently, it does keep growing at some outrageous rate. "And yet it moves..."
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Post by 2centsplus on May 6, 2015 22:33:45 GMT -8
But if talking about very large numbers, be careful of the straddles rules. As far as I can tell, both from the IRS pubs and from "Capital Gains, minimum taxes", options spreads seem like they should follow the IRS straddles rules. At the same time, I don't see people complaining about this, and even with brokerages now having to report both sides of the trade, it doesn't seem like they are following this. Either I am misreading the IRS rules and the book is wrong, or the IRS just isn't enforcing this. If I was dealing with very large numbers I would be worried about this. Not being quite there, and not having anyone get after me to do things differently, I'm happy to just follow what the brokerages are reporting to the IRS and how they are doing it. If anyone has any info on that, or why the straddles rules wouldn't be applicable, I'd be happy to hear. I'd rather know, than get blindsided like I was when short calls from a BCS were called away for dividend harvesting. I also have been trying to figure out this straddle rule for years because it does seem like it should apply. The best I can figure it is that the rule is so poorly defined and matching long and short options so complicated that they don't even try except in absolutely clear-cut cases where things match up.
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4aapl
Moderator
Posts: 3,635
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Post by 4aapl on May 7, 2015 10:11:01 GMT -8
But if talking about very large numbers, be careful of the straddles rules. As far as I can tell, both from the IRS pubs and from "Capital Gains, minimum taxes", options spreads seem like they should follow the IRS straddles rules. At the same time, I don't see people complaining about this, and even with brokerages now having to report both sides of the trade, it doesn't seem like they are following this. Either I am misreading the IRS rules and the book is wrong, or the IRS just isn't enforcing this. If I was dealing with very large numbers I would be worried about this. Not being quite there, and not having anyone get after me to do things differently, I'm happy to just follow what the brokerages are reporting to the IRS and how they are doing it. If anyone has any info on that, or why the straddles rules wouldn't be applicable, I'd be happy to hear. I'd rather know, than get blindsided like I was when short calls from a BCS were called away for dividend harvesting. I also have been trying to figure out this straddle rule for years because it does seem like it should apply. The best I can figure it is that the rule is so poorly defined and matching long and short options so complicated that they don't even try except in absolutely clear-cut cases where things match up. Thanks....glad I'm not the only one. As a home small business tax book eludes to with that area, I think part of it is there are just so many rules/tax law that basically no one knows it all, even there at the IRS. So you get a small group that knows this stuff there, but they are most likely focused on the really big players or the ones that do something obviously wrong. Now with reporting of the cost basis on most trades from your broker, the computers just have to see that filers put in the right totals, and they should be able to crack down on much larger issues. Someday, when more gets calculated by the IRS computers, we might hear more about it. Hopefully by then most if not all of my options trades will be in my Roth.
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Post by 2centsplus on May 7, 2015 13:32:18 GMT -8
I also have been trying to figure out this straddle rule for years because it does seem like it should apply. The best I can figure it is that the rule is so poorly defined and matching long and short options so complicated that they don't even try except in absolutely clear-cut cases where things match up. Thanks....glad I'm not the only one. As a home small business tax book eludes to with that area, I think part of it is there are just so many rules/tax law that basically no one knows it all, even there at the IRS. So you get a small group that knows this stuff there, but they are most likely focused on the really big players or the ones that do something obviously wrong. Now with reporting of the cost basis on most trades from your broker, the computers just have to see that filers put in the right totals, and they should be able to crack down on much larger issues. Someday, when more gets calculated by the IRS computers, we might hear more about it. Hopefully by then most if not all of my options trades will be in my Roth. Agree. When I asked a tax lawyer several years back he said the IRS never wants to go to court and lose, which invalidates all kinds of things past and present. And since Congress never explicitly defines in the tax code which options at which date and strike will offset each other, it is a little murky for everyone.
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