OptionPundit

Tag: AAPL

  • Earnings preview Apple AAPL

    Apple (AAPL) is set to report its highly anticipated June results today i.e. July 24, after the market close. Besides Google (GOOG), Apple (AAPL) is another popular stock with option tarders to play earnings.

    What to Expect: According to briefing.com, here is what traders are expecting:

    The Street expects Q3 EPS to grow 33% year-over-year to $10.38 and revenues to grow 31% YoY to $37.43 bln. Not surprisingly, the Street estimates are above the company’s typically conservative guidance of EPS of $8.68 and revenues of ~$34 bln issued on the Q2 release (April). Yet the Street has set relatively low expectations with some analysts even anticipating a Q3 miss.

    Another expectation element is around iPhone5/ iPade sales. You may find information on that anywhere on the web so I won’t go into those anticipations.

    Options Take:

    AAPL IV SKEW

    This quarter IV rise prior to earnings is not as dramatic as it was during the last quarter when VIX equivalent IV of AAPL was at around 50. (Don’t trade AAPL earnings without reading this first).  The IV skew between Jul weekly options (expires this week) and Aug options is about 25%. Which is higher vs last quarter. Bottomline, premiums are elevated but not as much as it was during the last quarter and based on ATM implied volatility, options are pricing a $26+/- move and based on last quoted prices, a $605 (nearest ATM) weeklies’ straddle can be sold for $32.40 credit. Based on the past 4 quarters, AAPL has moved 8-10% during the last 2 quarters and about 3-5% during Jul/Oct 2011 quarters.

    (Sign-up for OP Monthly Income Newsletter; generating consistent returns for the past 5 years)

    Technical Take

    AAPL Daily Price Chart

    AAPL is again trending upwards with 20dma as support. 50dma is 579.54 and 200 days moving support is 502.33. All time high for AAPL was $644. So it seems that a range play between 550 and 650 could be a good one to trade. And in the most likely scenario either of the trend line will be broken which will set the stage for post-earning move. In the extreme highly unlikely scenario (remember CMG), the stock may move to $680 and $535.

    How to Trade:
    There are various ways to play earnings. One of the easiest trade is via option straddle or strangle. If you are a buyer, you risk is if stock doesn’t move big (uncertain) and Implied Volatility crash (Certain). If you are a straddle/strangle seller your biggest risk is stock move (uncertain) beyond your breakeven point (recall CMG). If you are fine with the probable range, an Iron Condor strategy could also provide a good solution. If you are an option trader, here are several ways on how you can trade google earnings with a good risk/reward ratio. If your outlook is that stock won’t move, you can also trade earnings via calendars spreads. However if you think stock will sure move, Reverse Iron Condor and/or selling Butterfly could result in nice gains too. Every strategy has its own pros-n-cons choose what you like based on your risk/reward preference.

    (Sign-up for OP Monthly Income Newsletter; generating consistent returns for the past 5 years)

    WHY DOES IT MATTER:
    Apple (AAPL) earning event is one of the events that can provide some exceptional gains in a very short period of time. CMG recently demonstrated the exceptional gains possiblity that are associated with earning events.

    WATCH-OUT:
    Keep in mind that earnings are always a 50/50 probability event and stocks can move in a much wider range than implied by either option market or forecast by charts.

    (Sign-up for OP Monthly Income Newsletter; generating consistent returns for the past 5 years)

    Trade carefully, Trade profitably, OP

  • Will You Trade Apple Earnings Like Warren Buffett Traded Burlington Northern?

    Apple (AAPL) is scheduled to report earnings on April 24th. I have already shared some interesting things about this quarter that you may want to read before playing Apple earnings (Please read to get on-board).

    So, assuming you want to trade AAPL earnings, you need to answer following (for this earning announcement only) –

    1. Are you Bullish?
    2. Are you Bearish? or
    3. Are you Neutral and don’t care whether Apple drops or goes up after earnings, but you still want to trade without a directional bias?
    4. How much will Apple move? Whether bullish, bearish or neutral, you need to decide how much Apple can move. For this article, I shall assume that Apple might move +/-$40 (this doesn’t mean that I think it will move by $40)

    Let’s discuss the the BULLISH case.

    This assumes that you are an Apple fan, you believe in the company and you want to add to your previous purchases. You are a long term investor. You are in no hurry though.

    You could do it via followings-

    1. Buy 100 Apple shares @ $573, your investment risk is $573×100= $57,300; If Apple goes up $40, you make 40×100=$4,000 i.e. $4,000/$57,300= +6.98%; if it drops $40, you lose $4,000 or -6.98%. But since you are a long term investor, you don’t really care for short-term “fluctuation” because you know Apple business is worth more than $573/share and you have enough margin of safety at $573.
    2. You can buy ITM, ATM or OTM weekly, next month, or LEAP call options to lower your cost. For simplicity, let’s assume purchase of only 1 contract of May’12 $500, $570 and $640 calls which costs $7,980, $3,120 and $865 respectively (as of Friday April 20, close). Assuming post earnings, Apple goes up $40 and IV drops by 10%, the $500 call be worth ~$12,000, $570 call will be ~$5,200 and $640 calls will be worth ~$1,500 (post earnings) and ~12,000, $4,300 and $0 respectively on May 18th expiration close. By playing via call options you are leveraging your capital. As you know leverage is a double edged sword. So, if Apple drops by $40, the leverage will work against your trade, incurring greater losses.

    There are many others option strategies to go long but for now let’s focus on these two popular ones. Clearly both the strategies have their own advantages and disadvantages.

    Here is the 3rd alternative, (more…)

  • Don’t Trade Apple Earnings Without Reading This First

    Apple Inc. (AAPL), the biggest publicly listed company on the planet is about to announce earnings on Apr 24th, after markets are closed. It is estimated that nearly 200+ Hedge funds have AAPL shares in their portfolio. And it is one of the most commonly talked about stock on almost every main stream financial media, website, forums, blogs, etc.

    Here are some of the interesting things you may want to know before you go for that option trading strategy.

    Since the last quarter earnings announcement, AAPL stock is up roughly 40% as of now (@$586 current market price). During this time, normally one would expect implied volatility (IV) to drop (and rise before next earning announcement). However, AAPL’s implied volatility (IV) almost doubled during this period!! (Find out what is Implied Volatility)

    What's in Apple's store during this earning announcement?

    What does that mean? (more…)

  • AAPL +35.6%; MCO +3.5%

    Basic members were alerted for 2 free trade ideas. One is closed for nice gains while other trade has been successfully rolled to next month.

    Starting with Moody’s (MCO) trade idea. The basic premise for that trade was shorting of Moody’s by hedge fund manager David Einhorn, who correctly questioned the health of Lehman Brothers four months before its collapse. I wanted a trade that will still yield profit even if I am wrong. The trade idea (An Option Trader’s Way to Short Moody’s) was first shared with the Basic OP Members (Membership is free until Dec 2009, click here to sign-up). In spite of MCO rising almost 10% against my desired direction, we successfully rolled the trade to July gaining +3.5% in June.

    The other trade was on Apple (AAPL) where I shared my bearish stance based on last several year’s historical data (and pleasantly, history did repeat) –

    At OptionPundit, we played this event around this time last year and made good gains. While the same approach (Bearish bias) has pretty good chance of making money, context however matters.

    I shared the trade via comments section on what exactly I was planning.  Since then AAPL has been falling almost non-stop. I closed it at various profit points, the largest being +35.6% gains. Another OP reader Ron  shared his ideas for a ratio spread.

    The basic membership to the OptionPundit site is free until Dec 2009. If you would like to be a member and receive alerts to free trade ideas or important market commentary, pls click here to sign-up

    We are about to start July’09 OPNewsletter portfolio and this is a record month in the making. If you would like to sign-up, this is an appropriate time to join OPNewsletter.

    Profitable Trading, OP

  • A Bearish Apple (AAPL) Trade

    The Apple Worldwide Developers Conference (AWDC) is starting today and AAPL stock has been on an upward movement for past few weeks. At OptionPundit, we played this event around this time last year and made good gains. While the same approach (Bearish bias) has pretty good chance of making money, context however matters. This time around we have two key things in play a) Uncertainty around Steve Job’s return and b) General Macro Economic Environment. So read my post through skeptical lenses.

    There are a lot of speculation around “what if” Steve returns and “what if he doesn’t”. Most markets participants don’t expect any significant move in stock as Tim Cook has been doing a good job in keeping both investors as well as Wall Street happy (AAPL stock moved from a lows of $80s to $146 last week.)

    Let me share some observation (shared by another OPN member) on AAPL price action leading to AWDC. The price upward movement starts as early as 8 to 18 days prior to the AWDC since 2003. And on the 1st day of AWDC, it is generally higher but either the same day or in a matter of few days it closes sharply lower. It behaved the same way last year; dropped sharply on the opening day of the AWDC itself.  If you are looking for past dates for an analysis, here are past AWDC dates:

    • 2008: June 9-13
    • 2007: June 11-15
    • 2006: Aug 7-11
    • 2005: Jun 6-10
    • 2004: Jun 28-30
    • 2003: June 23-27

    While you are doing your analysis and stock price movement, you may want to look at-

    1. When was the AWDC date announced?
    2. How did the price behave leading to the date? rather how many days before price started to advance?
    3. How did the price behave on the opening day?

    That’s for above the surface analysis. For below the surface, you may want to look at Greeks, Price/Volume analysis to assess what happened to AAPL internals pre and post AWDC. For, even if you are on the right side of the trade, you may not make money if greeks are not in favor. I am looking for a bearish trade set-up and If I get more time I shall share what trade set-up I am looking for. You may consider Bear call spread, Bear put debit spread, put diagonal, straight put, etc.

    If you want to share your views or participate in a conversation, start sharing your views via comments here in this post. I shall add my trade idea later in the comments section.

    Disclaimer– Past performance is no guarantee of future returns and hence pls do your due diligence before investing. I don’t have it opened yet but I may do so anytime.

    Profitable Trading, OP

  • A New World? or Is it the Same Old Thing?

    As of this writing, U.S. stock-index futures and Asian shares rose after Apple Inc (AAPL). and EBay (EBAY) Inc. reported profits that beat analysts’ estimates, fueling expectations the slowdown in consumer spending may be easing but let’s wait for UPS and others to tell us more.

    Bloomberg tells – Short sellers are increasing bets against developing-nation stocks by the most since March 2007, a signal the biggest rally in 16 years may fizzle as profits plunge from Brazil to Taiwan. Short interest in the iShares MSCI Emerging Markets Index fund, which tracks equities in 23 developing nations, climbed 51 percent in March, the biggest jump in two years, according to New York Stock Exchange data compiled by Bloomberg. Wagers against Rio de Janeiro-based oil company Petroleo Brasileiro SA’s U.S.-traded shares (PBR) were the highest since August 2005. Short interest in all stocks traded on the NYSE rose 11 percent last month to 4.23 percent of shares outstanding. The NYSE releases short interest data to mid-April at the end of this week.

    UK Bailout equals the UK GDP, Wow. According to bloomberg- U.K. government support for the banking system has risen to 1.4 trillion pounds ($2 trillion) and may climb higher as the financial crisis spreads to building societies and economists warn lenders may need more aid. The amount invested in, loaned to or pledged to back bank assets now equals Britain’s gross domestic product, or 22,800 pounds for every person in the U.K. Unprecedented! oh by the way, Is it still enough?

    And guess what? Britain’s Labour government on Wednesday unveiled plans to ramp up taxes on the rich and rein in public spending as its chancellor of the exchequer Alistair Darling confirmed a huge increase in borrowing to restore the public finances, which are in their worst state since the second world war.  Announcing plans to raise the top rate of income tax from 40 per cent to 50 per cent next year for those earning more than £150,000, Mr Darling said the move was part of a “fairness” agenda which would see the wealthy help support the poor.

    Uncle told me to keep mum. According to Wall Street Journal, Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. — a deal that later triggered a government bailout of BofA — according to testimony by Kenneth Lewis, the bank’s chief executive.

    Is Slowing rate of contract equals turn around? What do you think? Is the slowing rate of contraction equals to economy turning around? 100>60->50->47, is that equal to things turning around? Here is what Bloomberg thinks- Europe’s manufacturing and service industries contracted at the slowest pace in six months in April, signaling the worst of the recession may be over. And market surely thinks that way. Too many people think that markets turn around 6months before the actual turn; are we really only 6months away from the recovery?

    If IMF has any credibility to it’s existence- The IMF said that world output would contract by 1.3 per cent this year and grow by just 1.9 per cent the year after in what it described as a “substantial downward revision” of its January forecasts, when it said that the global economy would grow by 0.5 per cent this year and spring back to 3 per cent growth in 2010

    Oh Btw, IMF is gloomy when politicians are marching the “Hope Campaign”. According to FT, The fund expects US output to contract by a whopping 2.8 per cent this year. Unlike most economists predicting a recovery in the second half, the IMF sees no improvement until mid-2010. Even then it reckons growth will only be an anaemic 1.5 per cent. The Congressional Budget Office, by contrast, forecasts 4 per cent growth in 2010; eurozone output will plunge 4.2 per cent; Germany down 5.6 per cent; Long-suffering Japan is forecast to slow even more. In all, the IMF reckons aggregate gross domestic product across the advanced world will fall 3.8 per cent in 2009, with no growth next year.

    So who do you trust or would like to believe?

    Read “Stress Test Scores ‘C’ If Name Ends in ‘itigroup’ by Mark Gilbert for some lighthearted examples of the kinds of searching, penetrating questions the Treasury Department should ask.

    Prepare for another roller coaster, Profitable Trading, OP