Yesterday, there as an interesting ratio call spread that traded in AAPL that I highlighted in this morning’s TMO post:
AAPL – While most of the volume was in weekly options as usual, there was a buyer of 14k x 28k of the Jul25th 92/96 1×2 call spread for 0.46 to open. AAPL is expected to report earnings on the week of Jul25th expiration, so the 1×2 call spread, which will be profitable between 92.46 and 99.54, will catch the earnings event. AAPL’s high of the year is $95.05, and its all-time high is $100.725.
This trade structure makes a lot of sense for those who don’t think an imminent AAPL breakout to all-time highs is likely after the July earnings report, but want a cheap way to play for some upside between now and July 25th. It looks especially attractive if you are already long the stock (and hence willing to get called away if AAPL does indeed move above 100), since the chart’s setup suggests a nice range to play for on a bounce over the next month:
I’ve marked the profitable area for this 1×2 call spread with the green and red lines above. And of course, you’re only risking 0.46 of premium plus giving up the upside above $100, which seems like a reasonable trade-off considering the importance of that Sept 2012 all-time high in AAPL.
Analysts have modeled in 14% year-over-year growth for the second quarter results, after the 15% yoy growth figure of the strong first quarter. The guidance will be important as well as we approach the highly anticipated second half 2014 period and long-awaited product announcements.
AAPL is a significant driver of index performance so far in 2014, up 14% in the first half so far. With that in mind, expectations around the stock have lifted. The 1×2 call spread is a solid structure to play for slightly more incremental upside at limited cost, while giving up the chance for an unlikely home run breakout in the largest company in the world.