I guess it was about a week ago Pete Najarian on Fast Money said that he kept his Apple shares, but sold 140 April calls for 9 dollars a piece. When he said that I thought he was crazy.

How did it play out? Not so good folks. First he sold the options at 9 dollars and for a very short period he was right as the option went down to 6 dollars. But then Apple came back with a vengeance. (Note Apple might still drop..)

Today Apple closed at 149.40 meaning those options are in the money by 40 cents. Thus Pete is loosing 40 cents with zero premium. However, right now the price for the April 140 call option is 11.45, meaning he is loosing 2.45.

So what does Pete advise today? Sell more options on the financial’s.

Folks let me tell you to not follow his advice, please don’t because you might get burnt. I don’t think from a probability perspective that the trade will not be profitable. Here is why:

  1. The shorts are getting fire from the regulators, meaning the shorts are going to have to cover.
  2. UBS today bounced due to multiple reasons, but one of them was due to the fact that the company that loaned shares to be used for shorting did not loan any shares. You could not short UBS today on the Swiss market.
  3. The banks (read not investment banks) have exposed their complete positions for the most part (I received confirmation of this from several individuals) and the books will remain as is. Their portfolios are assuming a slower year and if that comes to pass people might be surprised by the earnings.

Add all of this up, and it gets back to my point where selling into a bear market rally is a REALLY bad idea.

The probabilities of selling into a bear market rally is that the stock will go higher and not lower with Apple being an example. Just today I saw Apple’s marketshare gaining in the enterprise. Pete himself said every 1% marketshare gain translates to a yearly dollar of earnings. It is a dangerous action to sell call options because you might get royally caught with your pants down. There is a way to play this, but that is a strategy I do not care to discuss.

Pete is speculating and there is nothing wrong with that, but I get a feeling that Pete is thinking the financial’s are going to drop again. And that is where I am skeptical.