AAPL Juice

by riskreversal October 25, 2016 12:55 pm • Trade Ideas

Earlier we previewed Apple’s (AAPL) fiscal 4Q earnings, due after the bell. Now we’want to detail a few options strategies for existing holders, and one for those looking for defined risk long exposure.

First we want to detail a strategy that potentially adds leverage to an existing stock position. This is where focusing on the implied move can important to help inform options strikes, and also, having a sense for how the stock has reacted relative to implied moves into earnings. Right now the implied move is only about 4%. This is below the 4 qtr average one day post earnings move of a little less than 6%, and might imply some investor complacency given the recent release of iPhone 7 and the fact that the stock has been volatile following the the past 2 earnings events. Therefore, looking to add leverage to an existing long should account for the possibility of a move greater than the implied move:


vs 100 existing shares of AAPL ( $117.50) Buy the Nov 123/126 1×2 call spread for a .05 credit
  • Buy 1 Nov 123 call for 1.05
  • Sell 2 No 126 calls at .55 (1.10 total)

Rationale – This overlay of an existing long AAPL position offers the possibility of adding up to 3.05 in additional gains if the stock is above 123 on Nov expiration. 123 is just outside the implied move on earnings, so it basically supercharges gains if the stock is up more than the implied move. With the sale of 2 calls on the 126 line it does risk being called away in the stock above that level, but it’s at an effective price of 129.05, or 10% higher than where the stock is going into earnings. Profits trail off above that level but a move like that is unlikely so this is good risk reward considering it’s most likely scenario is simply expiring worthless, but since it’s a .05 credit that’s not a risk. It is not a hedge in anyway. If the stock goes down there is no protection. For that, let’s move onto a hedge idea…



vs 100 existing shares of AAPL ($117.50) Sell the Jan 130 call vs Buying 110/90 put spread for $1
  • Sell 1 Jan 130 call at 1.00
  • Buy 1 Jan 110 put for 2.20
  • Sell 1 Jan 90 put at .20

Rationale – This put spread collar costs 1.00 (less than 1% of the underlying) to protect against any significant declines in the stock into 2017. The other risk is being called away in the stock above 130 but there’s plenty of time to adjust if the  stock looks like it’s threatening that level before an expiration. The most likely scenario is the stock closes somewhere between 109 (where protection kicks in) and below 130 (where the stock is called away) and the $1 is lost. But for those that own AAPL from lower than 109, this is a great way to protect those gains into this earnings report as well as any shenanigans in the market into the Dec FOMC meeting and the turnover of the calendar, which hasn’t been too kind the past few years.


The third options strategy to look at is for those that would like to be long AAPL for additional upside, but unwilling to take on the risk that entails after the stocks recent rally. In that case a stock alternative makes sense:

Stock Alt/ Replacement

Buy the AAPL ($117.50) Dec 120/130/140 call butterfly for 1.75
  • Buy 1 Dec 120 call for 2.65
  • Sell 2 Dec 130 calls at .50 (1.00 total)
  • Buy 1 Dec 140 call for .10

Rationale – This trade risks 1.75 (less than 1.5% of the underlying) and has a break-even just below the implied earnings move on the upside. It has the potential of up to 8.25 in profits if the stock is 130 on Dec expiration. Any down move on earnings (or into year end) and the most that can be lost is 1.75. That’s much less than the implied move into earnings of around 5.00.