Cautiously Playing AAPL Earnings

The whole world is chiming in on Apple (AAPL – 512.50) earnings with buzz that is usually reserved for the next move to save the economy out of Washington, DC. I do not want to be left behind in all this chatter so here’s a thought for the faint of heart that cannot bear to be on the sidelines as AAPL reports tonight and the stock reacts tomorrow, but do not want to risk an arm and a leg to have an AAPL position into earnings.

According to some numbers I pulled off the Bloomberg the average move for the stock has been about 4% (higher or lower) over the last eight quarters. With the stock at 512.50, up 4% would land the stock at 533.00 and down 4% would put the stock at 492.00. Remember this is based on AAPL trading at 512.50. I’m sure the stock may move around some between this posting and the close. 

If you have a directional bias you might consider trading it with a little cushion. The dollar reward versus risk may not be so attractive, but this structure allows you to be wrong (very wrong) in fact and maybe still profit from taking a position on AAPL’s earnings tonight. 

If you have a bullish outlook consider this –

You can sell the Weekly AAPL Jan 25th 490 Put at 8.00 and buy the Weekly AAPL Jan 25th 480 Put for 5.00. The result is a credit of 3.00 and a risk of 7.00 if AAPL is below 480.00 this Friday. Even if results disappoint and AAPL loses 4% the profit from this trade could be 3.00. 

If you are bearish consider this idea –

You can sell the Weekly AAPL Jan 25th 535 Call at 7.90 and buy the Weekly AAPL Jan 25th 545 Call at 4.90, again for a credit of 3.00 and a risk of 7.00. The stock can rally as much as 4% (remember you are bearish) and the result is still a profit. Wrong and a profit you can always be OK with that. Again your risk of 7.00 is if AAPL rallies over the higher strike of 545.

Finally if neutral (because that’s an opinion too) –  

Maybe combine both for a 4% range in either direction over the next few days and AAPL settles between 490 and 535 put on both spreads and hope all news is priced in, at least for a 4% move higher or lower.