Considering Our Options – $AAPL Earnings Plays

by CC October 29, 2013 12:51 pm • Commentary

Over the last couple months we have detailed a handful of different AAPL trades all with any eye towards last night’s fiscal Q4 results serving as a catalyst.   We have traded some of them, while others we liked against long stock positions, so I wanted to go over how they all stand following the earnings report, with the inside move and vol crush having had a big impact on all of them. I’ll give our thoughts on management of all the trades as well.  

First, going back to early September, Dan went over a defined risk structure with tons of upside if the stock broke above 500. The stock was just under that mark at the time. Here was the trade:

2:11 pm EDT – September 6, 2013

AAPL ($497.50) Buy Nov 500/550/600 Call Butterfly for 10.00
  • Buy 1 Nov 500 Call for 25.00
  • Sell 2 Nov 550 Calls at 9.00 each or 18 total
  • Buy 1 Nov 600 Call for 3.00

With the stock at 525, this structure is now just over 20 dollars. It is about 40 or so long deltas here so remains a very bullish structure with 550 being its max payout of $40.  If you put this trade on your decision now should be based on those deltas first and foremost as there’s only about $5 in decay left in the structure. (if stock expired at 525 the structure would be worth $25) So this is one where your decision is based on whether you think the stock drifts higher over the next two weeks or so, or you like having the double in the trade and just want to take the money and run. The closer we get to expiration, and if the stock is below 550, the more this trade moves towards being 100 deltas. Above 550 into expiration it becomes short deltas. If the stock goes to 500 or below it’s a total loss.

Yesterday we went over a couple of short vol trades that made sense given our opinion that AAPL was unlikely to make a huge move on earnings. The first was a bullish upside 1×2 call spread that is actually short deltas and short vol to start but if AAPL creeped up towards 600 by year end would add yield to a long stock position. Here’s that trade:

Against 100 Shares AAPL Long at $528- Buy Dec 570 / 600 1×2 Call Spread for Even money
  • Buy 1 Dec 570 Call for 9.50
  • Sell 2 Dec 600 Calls at 4.75 each or 9.50 total

With the stock at $525 this structure is worth about 70c, or a 70c profit. This profit mostly comes from the fact that December vol is down and the structure was net short vol. If you did this trade what you do from here is all based on what you think happens next in the stock. If you like the idea of adding yield on the upside in case of a creep up towards 600 by year end, then this is a nice structure to leave on. If your play was for a gap higher on earnings, which didn’t happen, and you don’t think the Christmas rally is coming, it’s nice to just take the money and run and look for other structures from here on out.

The other structure for longs we highlighted yesterday (which I love and we should do more often) was a straddle sale against long stock. Here’s that trade:

Against 100 Shares AAPL Long at $528 – Sell Nov1st 530 straddle at $31.80
  • Sell 1 Nov1st 530 put at 15.00
  • Sell 1 Nov1st 530 call at 16.80

This structure is worth about 13 with the stock at $525 or a nearly $19 dollar profit. What that means is there’s very little premium left to decay and unless the stock pins at 530 this Friday, it’s probably greedy to stick around for any more profits on this one. If you did this trade I’d probably just close it on any intraday strength.

The trade we did into earnings yesterday also looked to take advantage of the fact that we didn’t think AAPL was going to do much on earnings. Here’s that trade:

TRADE: AAPL ($529) Sold Nov 16th 500/490– 565/575 Iron Condor at $4.00

AAPL Sold Nov 16th 500/490  Put spread at 2.50

  • Sold 1 Nov 16th 500 put at 7.50
  • Bought 1 Nov 16th 490 put for 2.50


AAPL Sold Nov 16th 565/575 Call Spread at 1.50

  • Sold 1 Nov 16th 565 call at 5.65
  • Bought 1 Nov 16t 575 call for 4.15

With the stock at $525 this trade is worth about 2.40, so almost a double at this point. We’re going to let this decay even more into November expiration before closing, or ideally letting it expire worthless. Our trade management on this will be dictated by any runs in the stock towards the short strikes of 500 or 565. If that starts to happen we’d probably look to take it off for a profit, but if the stock continues to dance around the Icahn line of $525 we’ll let this thing rot.