Very confusing and potentially volatile scenario over the next 2 weeks in AAPL ($628.10).
IPAD is rumored to be announced next Wednesday October 17. Quarterly earnings are expected to be released the following Tuesday, October 23. As my buddy Leo Andrade says, “Normally AAPL runs up into product announcements then backs off (buy the rumor sell the news), but this time may be different because earnings will be announced a week later and consensus has earnings being very good.”
Bullish Butterfly in October Expiration for AAPL (October expiration is Friday October 19th).
Buy 1 October 660 strike call Sell 2 October 670 calls Buy 1 October 680 call for a total Debit of $80
Breakeven(s): $660.80 and $679.20. (all numbers exclude commissions)
Potential loss: $80 if AAPL below $660 or above $680 at expiration
Potential Gain: $920 if AAPL at $670 at expiration. Profitable between $660.80 and $679.20.
1) Earnings come out October 23rd, after October expiration. This spread will not see the potential wrath of AAPL earnings. With AAPL down about 10% in the last 3 weeks, I think we are near some type of support in AAPL at least till the earnings date.
2) If we even rally a bit over next week, this spread will expand quickly. We don’t need to be near the short strike over the next 5-6 days to make 30-40% returns. For example, if AAPL on Monday’s date is between $645 and $690, the trade could be up approximately 30%. And that includes me raising the options volatility 3 points, not good for a butterfly trade, as a stress test.
3) Option Volatility has increased in the last few weeks and that makes this butterfly cheaper to purchase.
Thanks, (I will be discussing more on AAPL earnings ideas and also GOOG today Friday during a free webinar at Sheridan Mentoring, you can go to site and sign up).