Apple: Can We Wait Until Earnings Are Released? My Options Trades

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 |  About: Apple Inc. (AAPL)
by: Regarded Solutions

It seem that I have gained quite a following of Apple(AAPL) cheerleaders since my last few articles. I must say that I am impressed by their extremely emotional "bond" with Apple shares (and the company). Let me clarify, I am impressed by their loyalty, but as far as the stock goes, those who fall in love (or lust) with any stock, will eventually get burned, in some shape or form.

The last 2 articles I wrote were polar opposites in terms of content. This one was strictly about the basic fundamentals, the pipe line of products, and how amazing the company actually is. While this one also extolled the virtues of Apple, but offered my opinion that a pullback was imminent.

The odd part about both of the articles from my stand point is that they are both quite accurate, and bullish for the longer term.

From the over 500 combined comments, one would think that I am suggesting that everyone just liquidate all shares, or, as in the case with the fundamentals only article, I am "suggesting" that buyers back up the truck and load up!

When you read both of the articles you can see no such thing, other than my opinion that the stock could pullback (which it has from $644/share down to $585/share), as well as my opinion of how amazingly strong apple fundamentals have been.

In retrospect, anyone who read both articles, even now, can see that I actually was pretty accurate, and I will have my crystal ball up on Ebay (NASDAQ:EBAY) sometime tonight! I can recall when I actually traded around my opinions, and there were times when I was very right, and times when I was very wrong. Of course it was only between myself and my checkbook, not for the world to see.

Here on Seeking Alpha, my goal is to take some of the mystery out of the market so that regular folks have a good shot at making some money. That does not mean I am always right, nor am I always wrong. Lately I have been having a decent run, but also being VERY conservative (even with risk), and that is the key to minimizing your downside risks, while maximizing a profit potential.

With Apple, I advocated taking some profits (read this), which is just plain prudent. I also explained that I want to own Apple for the long haul, but since I believed that the price had moved up too far, too fast, that I was selling naked puts, to own shares at $500/share with a May 19th expiration.

I have made that trade and have been paid $560/contract to wait for it to fill (if it does), and as of today, I have also purchased the LEAP calls, 600 strike price, with a January 2013 expiration.

I felt the shares had pulled back to a level where it made sense for me to add another bullish position on the stock by owning the LEAP calls. I paid $6975/contract approximately, and since they have a 9 month "window" of opportunity, I might as well take advantage of the pullback by taking this position.

Now, it might appear that I am playing both sides of the same coin. Of course I am, but remember, I am an Apple bull who wants to own shares at $500, but I can live with the premium I have made, and if the stock continues it's upward march, which I believe the fundamentals suggest, I am using leverage to make almost as much money on the options as I would by owning the shares (minus the dividend of course).

Taking it one step further, I could also hedge my trades by buying puts, but this time I am going on instinct, and will take the riskier road. I am pretty sure that Apple shares will retest their recent high of $644 since virtually all analysts have pegged their price targets from $660-1,200/share.

I will keep some rather tight stops on the LEAPS tomorrow, but after earnings I probably will take what the market gives me on Monday, and raise the stops if the options pop up. I will absolutely be at my traders program Monday and Tuesday.

My Opinion

Being an old trader, this is not the riskiest of trades I ever made, but it is also not something i would recommend for investors who cringe at the thought of making these trades.

Selling naked puts requires that you have the cash or margin secured if the shares fill (I never use margin) and obviously you want to feel great about owning Apple shares if they do drop down to $500/share. (I do!)

Buying LEAP calls (ITM or very close) is the only way to play options around an earnings report. You cannot get "killed" because you are putting less money at risk maybe placing a tight stop loss order to sell the calls, AND you have a longer time horizon IF you have the guts to wait it out (for Apple to soar past $600 again) without have the stops in place.

These are risk trades folks, and not for everyone. In my opinion they are quite conservative risk trades, and can potentially pay off if the share price reacts the way I believe it will.

Anyone else with me on this?

Disclaimer: Please be sure to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any security and is strictly the author's opinion.

Disclosure: I am long AAPL.

Additional disclosure: I have two positions. I sold naked puts to own shares at $500/share May 19th expiration, and I bought LEAP calls, $600 strike price, January 2013 expiration