What strategy for AAPL earnings?

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.

Why?

2 Reasons

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.

Sell

#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.

Buy

#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.

Weeklys Options

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  dan@sheridanmentoring.com