The Perfect Options Play For The Apple Earnings Announcement?

Dec. 23, 2012 2:55 AM ETApple Inc. (AAPL)4 Comments
Terry Allen profile picture
Terry Allen
1.65K Followers

Apple (NASDAQ:AAPL) is due to announce earnings on January 22, 2013 (although this is currently unconfirmed). A year ago they announced earnings on Tuesday, January 24, 2012 just after the monthly options expired. The January 22, 2013 date would be consistent with that pattern. Of course, this is the big quarter when iPhone 5 and the iPad Mini results will be known for the first time.

A year ago the market responded favorably to the announcement and the stock moved $26 higher on the news (and then continued to move up more slowly for several months).

Who knows what will happen this time around? A favorable compelling argument was made last week by a Seeking Alpha writer - Apple Is A Buy Before Earnings, but who really knows what will happen? The last two announcements were disappointing, and contributed to the recent implosion of the stock.

I personally believe the stock should be trading at least $30 higher than it is right now by the middle of January, but that is only a hunch from an Apple bull. I admit that I really have no idea. So the option play I suggest should cover a wide range of possible reactions to the announcement.

An interesting investment might be to buy calendar spreads at a variety of strike prices (centered around your best bet as to where the stock will be in the middle of January). If you bought February options and sold the January series, your current cost would be the middle column in this table:

Weekly

Cost of

Time Premium of

Option

Feb-Jan 13

Option w/3

Price*

Calendar

Weeks of Life

At-The-Money

11.00

11.00

17.00

+/- $5

9.00

11.15

14.00

+/- $10

7.00

10.85

12.00

+/- $15

5.00

10.80

10.00

This article was written by

Terry Allen profile picture
1.65K Followers
Publisher of options newsletter TerrysTips.com since 2001.. Thirty years experience trading options virtually every day. including stint as seat holder and market maker on the C.B.O.E. MBA from Harvard Business School and DBA from Univ. of Virginia Darden School. Author of Making 36%: Duffer's Guide to Breaking Par in the Market Every Year, In Good Years and Bad (4th revision - 2012) and Coffee Can Investing: A Better Idea Than Mutual Funds in an IRA or 401(K), 2014. TerrysTips.com is a newsletter that carries out eight different option portfolios which many subscribers mirror on their own or through auto-trade at several brokers who make all the same trades in individual customer accounts. Each portfolio offers something different (bullish, neutral, or bearish),and different underlyings (GOOG, SPY, SVXY, and other individual companies). In 2005, the S.E.C. brought an action against Dr. Terry Allen, claiming that he was managing money for people without being a registered investment advisor because of the auto-trade service offered by several brokers who placed trades in their customer accounts based on Terry’s Tips newsletter recommendations. A second complaint was for a single statement on his website that they believed was incorrect and therefore fraudulent. Although two large law firms assured Dr. Allen that if he went to court on the first issue, he would win because there was a Supreme Court decision stating that investment newsletters are exempt from registration requirements - it would be a violation of their First Amendment rights. However, they estimated that his legal expenses would be greater than settling with the S.E.C. (and a year or two of his time tied up in court proceedings), and both firms recommended that he accept the settlement offer while not admitting any guilt. The second issue (fraud) involved a single statement that was true when it was written but a couple of years later, option prices fell to 10-year lows, and it was no longer true. The S.E.C. argued that the statement was not removed from the website in a timely enough fashion. For the past eight years since the settlement with the S.E.C., Dr. Allen has have been publishing the Terry’s Tips newsletter (and recommendations are executed in customer accounts at thinkorswim by TD Ameritrade through their Auto-Trade program), and the S.E.C. has not objected to any of his activities.

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