bullish call on AAPL earnings call

Discussion in 'Options' started by 11Blade, Oct 19, 2008.

  1. 11Blade


    My bias on AAPL going into Tuesday is that the earnings number is going to be pretty decent with an unexpected volume of iphone sales.

    (Supposedly these dang phones make more profit per phone than one of their pricey desktops - but I digress.. just to set my bias for this question)

    The Nov 85 Puts are trading at 6.0x to 6.2x right now. The Nov 100 calls are 10.xx. Close on underlying was 97.40

    Given my bullish outlook, I am not interested in buying outright calls because the premium is downright ridiculous in this down trending market.
    (By glance - not math)

    My first thought is to short the 85 puts
    Aapl hit a recent low of 85.00, I dont feel it will test it again (some may disagree).

    Or would the better trade be a Bull Put Spread with the 80 put at 4.xx.

    My reason for this question is basic, I'd like to see/read peoples thoughts/analysis of how to approach this trade.
  2. Here is AAPL's ABC Patterns.
    I like the support at 85 too but also watching Fib. Confluence support of two Daily ABC patterns and Weekly ABC support around 81-82.


  3. AAPL Weekly Chart


  4. dmo


    My problem with selling the put spread is that you are buying a strike with a high IV and selling a strike with a much lower IV.
  5. rickf


    You may be buying higher IV than you are selling on the spread but you're hedged if there is a huge and lasting downside move to AAPL. Might be safer, but not sure of the r/r value there.

    As to the short put, if you don't mind owning the AAPL shares if it should drop to (and stays below) 85 go for the short put. Or are you planning to try and flip them once IV collapses following earnings?
  6. 11Blade


    My intention was to try to exit post-earnings. I would obviously only risk enough to be able to take on the shares if I absolutely had to.

    The spread is safer but I don't know if its worth the profit
  7. candeo


    if you have a long-term bullish outlook on AAPL, why not buy a diagonal: Buy a leap deep enough in the money that you won't pay too much premium, and sell a front month OTM call to take advantage of IV drop.
  8. I would set up a straddle. Playing earnings for a certain direction is stupid because anything possible can happen when companies report earnings. Apple could have unforeseen higher transportation costs and higher chip costs that decrease margins.

    You know it will swing one way or another so play that swing and make money. Remember what happened when everyone got greedy on Wall Street? We are knee deep in it.
  9. the market we are in now, if the surprise is negative the stock will gap down, if the surprise is positive the stock will move a little to the upside, but the chance of a huge gap to the upside is limited unless we have some truely blowout news.

    If i were to play this(but i am not), i will short the gut and long 2x the wing.

    short dec strangle: 90/95 for 25 credit
    long 2x nov strangle: 85/100 for 24 debt

    exit the position immediately the next 1-2 days after earning if the position does not gap in either direction. You are still long vega though. Like i said i dont do earning plays unless the earning just happen to be 1-2 days before expiration and the stock is expected to gap then i might do a few straddle as a speculative play (good risk/reward ratio).
  10. 11Blade


    I'm not sure where that Nov 85 Put is going to go but AAPL on the surface of things had a good earning report.

    My hypothetical trade had me short 85 puts at 5.05.

    If AAPL gaps up early and ends down by the end of the day I would not be surprised.
    #10     Oct 21, 2008