Options play for AAPL earnings?

S

spersky

Hello,

I am learning about options. However, I am still somewhat inexperienced with option strategies.

APPL will be releasing earnings next week.

Lets us assume that AAPL will make a big move either up or down.

Would a straddle be the best play leading into wednesday? Maybe close to the money May options?

Suggestion/comment are welcome.
 
A 160 May straddle (both a 160 Call and 160 Put) would cost you about $18, implying a $17-$18 move in the stock from 160, which is about a 11.3% move.

Only do this if you think AAPL will move more than 11.3%. At that point, you're really only B/E if holding till expiration.

Heres a less risk, but way less reward strategy that saws it'll move past $168 (probable) or below $151 (also probable). It is a reverse butterfly that can produce about a $1.85 credit (with $8.15 max loss). Attached is the strategy PDF (note the P/L reflects commissions with IB at $0.70 per contract).
 

Attachments

If you want to play a direction, you could go long the $155 call at $12.50, implying a $6.50 move. On the put side, you can go long the $170 put for $14.10, implying a $5.15 move to the downside.
 
The reason I have been thinking about a straddle is because of the GOOG earning play would have been awsome.

I realize that this is not GOOG, but the principle is there.
 
i don't really understand how options work, which is why i don't mess with them. I have some sorta mental block that does not allow me to process how it works or something....

anyway, after downloading the pdf and looking at the maximum profit potential vs maximum loss risk, I have to ask, and hope the answer will help me understand...

why in the world would you risk $820 to make $179???

please help me understand.
 
The risk/reward is negative. However, the chance that you will make money on that trade is very very high. That high likelyhood of success offsets the negative risk/reward ratio.
 
keep in mind goog was also a better play because the earning was right before the april expiration, so your max risk and theta exposure is a lot less than opening a May position right now.
 
Quote from spersky:

The plan would be to exit the strategy Thursday after earnings release.
More...

so basically you are looking for a 11+% move in 1 day after earning? and ignoring volatility?

good luck.
 
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