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Kim Klaiman is a full time options trader and founder of SteadyOptions. He trades mostly non-directional strategies, like pre-earnings strangles and iron condors. Likes to trade strategies with negative correlation. He lives in Toronto, Canada. Visit the SteadyOptions.com forum. SteadyOptions... More
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  • How Apple Tricked The Options Traders 12 comments
    Oct 9, 2013 4:19 PM

    Over the last few years, Apple (NASDAQ:AAPL) used to report earnings during the week after the monthly options expiration, meaning the fourth week of the first month of the earnings cycle (January, April, July and October). This cycle was expected to be no different. However, two days ago Apple surprised the trading community and announced that they will report earnings on Monday, October 28. What does it mean for the options traders?

    Prior to the announcement, the options market assumed that the earnings will be as usual, during the week of October 21 which is the fourth week of October. The October week4 options (expiring on October 25) were trading at 35% IV (Implied Volatility), which is in line with historical IV of options expiring at the earnings week. Option expiring next week (November week1) were trading at 34% IV.

    After the announcement, the October week4 IV collapsed by 7%, to 28%, and November week1 IV increased by 1%, to 35%.

    And now to a little quiz: who benefited from the announcement and who was hurt?

    Well, if you were long the October straddle, betting on earnings big move, you have lost about 20%.
    If you were long October week4 and short October monthly options via a calendar spread, you have lost about 55%.

    And now to the most interesting part: if you were long November week1 options and short October week4 options, you gained a whopping 170%, due to the changes in IV between the two options cycles.

    The stock btw moved less than 1% that day.

    Ever wondered how all the insiders make their fortunes?

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Comments (12)
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  • six-oh
    , contributor
    Comments (577) | Send Message
     
    Are you suggesting that the earnings report date was changed so that AAPL insiders could make money off of options trading? Seriously??
    9 Oct 2013, 07:22 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2369) | Send Message
     
    Author’s reply » No, I don't suggest that - what I do suggest is that there were probably "few" insiders who knew that the earnings date will be different than usually, and they could make very good money on it.
    9 Oct 2013, 11:17 PM Reply Like
  • grass_hopper
    , contributor
    Comments (86) | Send Message
     
    This is great but how do we know this in advance?
    9 Oct 2013, 07:27 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2369) | Send Message
     
    Author’s reply » Well, since we are not insiders, we could not know that. I'm just saying that I would expect that maybe from some obscure company, not from Apple. A company like Apple should not surprise the investing community like this.

     

    But we all know that Apple today is not what it used to be, and this is one of the symptoms.
    9 Oct 2013, 11:20 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (559) | Send Message
     
    When in the day was the announcement made? Before the bell? After the bell? During market hours?
    9 Oct 2013, 11:28 PM Reply Like
  • Bill Maurer
    , contributor
    Comments (4834) | Send Message
     
    Apple announced earnings date after the bell, Tuesday I believe it was. The thing that complicated it this year is that next Monday is Columbus Day, and they shifted the iPad launch back a week. Thus, they pushed earnings back to the following week.
    9 Oct 2013, 11:35 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2369) | Send Message
     
    Author’s reply » Monday after the close. Check out the options prices on Tuesday open compared to Monday close.

     

    Columbus Day is next week, not the week they usually report, and it is not a market holiday anyway, so I don't see how this is related.
    10 Oct 2013, 12:26 AM Reply Like
  • june1234
    , contributor
    Comments (2570) | Send Message
     
    Yea see BBRY
    10 Oct 2013, 08:46 AM Reply Like
  • 9coriolis1
    , contributor
    Comments (46) | Send Message
     
    Wouldn't Apple insiders be in a trading blackout during this period prior to earnings?
    10 Oct 2013, 10:55 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2369) | Send Message
     
    Author’s reply » Different companies have different policies regarding blackout periods, but they could initiate positions prior to blackout period. Also, I don't think it would be too difficult to find a way to do it (friends, relatives etc.) And it would not necessarily be illegal.

     

    But this is not the point. The point is that a company like Apple should not surprise the investing community with such changes.
    10 Oct 2013, 11:27 PM Reply Like
  • Bill Maurer
    , contributor
    Comments (4834) | Send Message
     
    Well, it's the 4th Monday. They have a big launch the week before. Maybe someone has a vacation planned or is unavailable.

     

    You can't say it is a "change" when it's just an announcement of a date. It's speculation to then.

     

    It's like betting on a baby being born. You have a due date, but it could come within a given range of time.
    10 Oct 2013, 11:31 PM Reply Like
  • Bill Maurer
    , contributor
    Comments (4834) | Send Message
     
    It's not just AAPL, by the way. MSFT would normally report on Thursday the 17th with GOOG, ISRG. This quarter they are reporting the following week, 24th.

     

    DNDN is a week later this year too. It's not just an Apple thing.
    10 Oct 2013, 11:38 PM Reply Like
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