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How to play apple(AAPL) earnings? This is quite tricky, at least for my trading style where I don’t want to risk too much. As I mentioned in my earlier post, playing apple is quite expensive and hence I don’t want to play it unless there is good risk/reward ratio.
Based on my IV and TA, I think apple has all the potential to move by 10%. Now add a little more speculative factor i.e. stock split. I am positively biased for stock split. Net, my criteria for the trade is 1) Bullish bias but protected on lower side, 2) Should be able to accomodate at 10% move and 3) It shd give me flexibility to adjust, in case the trade goes against my plan.
Here are my two ways to play:
- Buy 120 Put calendar and 150 Aug/Sept Call calendars for 1.20 and 1.75 per spread. respectivley. This trade is interesting as break-even points are 113 and 166 (a $53 movement!!!!). As of this writing, Apple is trading at $136.5 that gives me about $30 coverage on the high side and about $23 on the lower side. Easily able to accomodate > 15% fluctuation. Maximum profit points are $120 and $150.
- In addition to the above trade, also buy 115 Aug/Sept put calendar and 155 Aug/Sept call calendar. This widens breakeven points to $109 and $171 i.e. move of about 20%.
The beauty of this trade is that this should also benefit from the Aug IV crash after the earning announcement (roughly about 10%). This trade also offers me flexibility to manage the trade should apple go against my plan. The same strategy can be applied to BIDU as well which is announcing tonight. But pls do weigh the risk/reward accordingly.
Profitable trading, OP
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