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On Monday, I discussed why I would not touch Apple (AAPL) ahead of earnings. The company needs to be perfect when it reports earnings next week. That alone scares the heck out of me. One tiny hint of "bad" news, even if it's not even all that bad, could send the stock cratering. The following excerpt from yesterday's article sums up my thesis:

When our hearts take over our minds, we make really poor decisions. You'll look at AAPL's numbers and see that it hit an all-time high of $644.00 on the recent run. That becomes the new price target and, while we're at it, why don't we add on another six bucks for good measure. Yes, I will take two beers in souvenir cups, an order of garlic fries, nachos and 3 AAPL May $650 calls for $11.55 each. I really cannot believe the market manipulators knocked them down by over $3.00 each.

I am here with a simple and straightforward message: Do not do that trade. If you must go long AAPL ahead of earnings, go deep, very deep ITM, preferably with long-dated calls. Use nothing that expires before 2013. That might sound conservative, but if AAPL does resume its rally, it might not happen right away, so buy yourself some time and intrinsic value. Long-dated, deep ITM, that's where the actual "bargains" are, particularly if your rabid bullishness turns into reality once again.

Of course, AAPL bulls will chide me because the stock experienced an inevitable bounce today, as it almost always does after a swoon. No doubt, those May $650 calls are up nice today. If you bought some yesterday, you made a heck of a trade. Book your profits. As I often stress, most of the time I do not write these articles or publish my options investing newsletter for traders; I work with long-term investors, such as myself, in mind.

Long-term investors trade a little, but, more aptly, they tend to speculate with some relatively insignificant chunk of their portfolio. While an AAPL trade looks good on-paper, if that type of trading becomes habit, the losses generally end up outweighing the gains and you run the risk of eating away at your long-term performance.

We all love tall tales of catching big fish, but generally the truth lies somewhere south of the middle.

Anyhow, if you're an investor looking to play AAPL earnings this quarter, the beauty of the situation is that they come after April's options expiration day. You're less likely to get burnt when you do not have the temptation of playing earnings with options that expire a day or two after a report. That said, I would stay away from anything near-dated and, depending on my sentiment, consider playing AAPL in one of the following ways that are better suited for long-term investors.

Bullish Sentiment

Fellow Seeking Alpha contributor Paul Zimbardo took exception to yesterday's article when he noted:

(click to enlarge)

I enjoy Paul's work quite a bit. I see what he is doing here. And, while he only needs some upside to turn a profit, I think he paints himself into a corner with these trades, particularly the May expiry.

No matter what contract he goes with, he only needs some upside to profit. He does not need AAPL to hit the strike or rally parabolically again, so what's the rationale behind going near-dated and relatively deep OTM? Sure, if AAPL continues this rally, it's all good, but what if there's a hiccup? By going long-dated and/or somewhat deep ITM, you buy yourself the luxury of intrinsic value and, depending on the expiration month you choose, time. It comes at a cost, however, which is why, though I cannot speak for Paul, many investors go OTM. That's an easy way though, relative to long-dated and ITM, to realize a larger loss than need be if you're wrong or just have slightly bad timing.

In any event, I would not use long calls if I am bullish, particularly if I already have a long position in the stock. If I have the cash to support the trade, I would write AAPL puts at the price I would like to buy the stock at on either a pullback, stagnation or a modest increase. If you do not get put shares you still collect a nice income for your troubles. For instance, as of this writing, the AAPL May $590 puts trade for $28.25.

Bearish Sentiment

If I am bearish, I also want to move cautiously. There's no way in the world I would short the stock. And the idea of going long OTM puts, near-dated or otherwise, is the inane equivalent of a bull going near-dated deep OTM calls. Instead, consider going long a deep ITM put with expiration three to six months out. You need to mind this type of position carefully.

The problem with using a stop is that AAPL reports after the market closes. If it crushes earnings again and the stock soars, your puts could trade down through your stop when the options market opens the next morning, resulting in an unfavorable exit price. No matter how you slice it, it's a risky trade, but if it goes against you, you can hang tight, wait for a natural pullback and get out with your hind end intact. If AAPL makes another sustained move, however, you're toast.

As a rule, I rarely make plays ahead of earnings. Exceptions include covered call trades on stocks that I would be more than happy owning long-term such as Intel (INTC) and Lululemon (LULU). Beyond that, so many better uses of options exist to jump into the fire around one of the most volatile times in a quarter.

Source: Ways To Play Apple No Matter Your Sentiment