AAPL reports earnings after the bell tomorrow and it is one of the most anticipated events each earnings season. From a strictly out of the money, close to expiration, option perspective AAPL has been a loser over the long haul. The main reason being the options price in a big move and this move usually does not happen, which means I likely will not play AAPL options for earnings, although I may get into a trade the day before and sell on Thursday for the premium build up near the close. Option prices are showing a market that is anticipating another volatile post earnings session for AAPL, which means only one thing….
AAPL, like NFLX ( a stock that has a similar out of the money price build up), will ultimately trade no more than 2% in either direction. This will kill all the out of the money speculators who are paying BMW type money for Ford Pinto type quality. Look at some of the strikes – the $660 strike is at $1.00. That is a full 10% move. The $540 strike puts are going for $.85. The odds are against either type of move, however where I forced to trade AAPL for earnings I would get equally insane and go even farther out of the money. If AAPL doesn’t make my anticipated 2% move in either direction, I think it will pull a 15% move which would make those out of the money speculators very happy. If you share my view the $680 strike closed at $.30 and would be worth $10 if we get a 15% move from AAPL. The $520 puts are also going for $.30. CMG’s 20%+ slide showed on Thursday night and Friday that anything is possible these days when it comes to earnings reports.
I may change my mind with AAPL tomorrow and take a small position in both the puts and calls, essentially a strangle.
The $680 calls for $.30 – 8 contracts = cost $240 (+ commission)
The $520 puts for $.30 – 8 contracts = cost $240 (+ commission)
With every analyst and his brother maintaining buy ratings on AAPL and $1,000+ price targets I do think the stock will head higher. It’s done nothing but go up since late 2008. Heading into earnings back then I was buying up $90 calls. To think less than 4 years later I am looking at the $680 calls. LEAPS!
The answer to the title of my post is quite simple….we don’t care. We don’t care where AAPL goes when we have a strangle. That is the luxury of trading stock options. All we need is a big move.
2 Responses to AAPL Which Way Will It Go George?
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I still don’t understand why your group doesn’t like to trade AAPL. Yes, there are better returns to find out there but AAPL appears to be easy money. I bought the $650′s today for $1.20 and sold over $2.28, an 88% move. Yes it is putting more money out there than you would like to do however I have no problem putting that money out there b/c I knew there was a trade there. That’s where I’m confused. Is it just about getting better returns somewhere else?
Oh and btw, I did hold onto a few of those calls for tomorrow trading session (before earnings). I may let all go except one call just to see exactly what happens after earnings as I haven’t ever held into earnings before since trading options.