AAPL earnings come out Tuesday after the close of trading. The last 4-5 quarters since the stock split, AAPL has seen dismal small moves between 2-5%.
This has favored Iron Condor strategies, credit spreads, short strangles, calendars, and most other range bound strategies. This earnings may be different and might be more volatile.
1) Stock is up over 10% from $120 to $132 in about 10 days. 2) NFLX , GOOGL, and other tech stocks have made bigger than normal moves. The range in AAPL over the last three months is also about $120 to a little over $134.
Here are 2 potential trading ideas with AAPL at $132.
#1 Sell the August 121-125 put credit spread in the August 7 expiration for $70. I don’t think the stock will go back down under $125 over the next 2 weeks. This strategy will yield about 20 percent if held till expiration.
The credit is $70 and the capital or risk capital would be $330. I would determine my size by how much I would be willing to lose if we had a huge move down. If I only wanted to risk about $300, I would do 1 contract.
If I was willing to risk $1000, I would do 3 contracts. If I was bearish and thought AAPL would drop below $125, I wouldn’t do this strategy.
#2 Buy the August Call Butterfly with expiration of August 7. Buy 1 August 131 call. Sell 2 August 135 calls. Buy 1 August 139 call. Total Debit $65 . I think the volatility in the August 7 expiration will drop about 10 points.
On Wednesday’s date with the implied volatility down 10 points, if AAPL is between 129 1/2 and 140 1/2 this strategy can potentially make between 10 and almost 60%. If I thought the stock Wednesday , after earnings would be between $129 1/2 and $140 1/2, I would consider this strategy.
The ATM straddle in the Weeklys options is currently around $6 1/2, which means the Market Makers are projecting the anticipated earnings move to be around 5% up or down. That would translate into a move of around $6 1/2.
Dan Sheridan email@example.com