As a non-directional trader, I'm trying not to be dependent on the market direction. My goal is to make money in any market. To achieve that goal, I need to constantly balance my portfolio in terms of direction and volatility.
When playing the pre-earnings trades, it is very important not to overpay in order to increase our odds. Determining what is a good price is not easy. Lets try to see what are the factors impacting our decision.
Apple (AAPL) closed April 16 at $580.13, down 10% from its all-time high of $644. It is now down for five consecutive days, something that hasn't happened since last October. What is behind the selloff and what does it mean for the stock?
Apple (AAPL) reports earnings on Tuesday, April 24, 2012, after the market close. There are many ways to play earnings. Some people would bet on the direction of the stock movement after the announcement and then buy or short the stock. Others will buy call or put options.
Last week, I presented 5 ways to play Google's (GOOG) earnings non-directionally. The stock moved 4.06% after the announcement, much less than expected. I would like to do some analysis how those trades turned out and what we can learn from them.
Apple (AAPL) will report earnings on Tuesday, April 24, 2012, after the market close. Will it be another blowout quarter? Many people are sure it will.
Looking at the last couple years, the stock has a tendency to run up at least 3-5% during the last couple of weeks before earnings. Simply buying OTM (Out Of The Money) calls two weeks before earnings and selling them before the announcement would work well most of the time.
About six months ago, I came across an excellent book by Jeff Augen, “The Volatility Edge in Options Trading”. One of the strategies described in the book is called “Exploiting Earnings - Associated Rising Volatility”. Here is how it works:
Find a stock with a history of big post-earnings moves.
Buy a strangle for this stock about 7-14 days before earnings.
Options can be risky, even very risky, but they don't have to be. Today I'm starting a series of articles about options trading. I will show you how options can be less risky or more risky, depending on your risk tolerance. I will show you that there is more than one way to make money with options. I will expose some of the myths and misconceptions about options trading.
Let me begin by saying this: I think that Apple (AAPL) is one of the greatest companies in history. I love the company and own some of its products. But I wouldn't trade it right now. In this article, I will try to describe the price action on Apple from an options trader perspective.
In one of my previous articles, I described the craziness around Apple (AAPL) options as reflected by the options premiums. At some point, the IV (Implied Volatility) jumped to 41%. I presented the following butterfly trade as one possible way to take advantage of this inflated IV:
In my article Why I Wouldn't Trade Apple Right Now, I argued that Apple (AAPL) has gone up too far too fast with no visible reason or significant news. The article provoked a very healthy and long discussion. Unlike many other public forums and discussion boards, the discussion was very civilized and intelligent. This is the power and the beauty of the Seeking Alpha community.
Google (GOOG) reports earnings on Thursday, April 12, 2012, after the market close. There are many ways to play earnings. Some people would bet on the direction of the stock movement after the announcement and buy or short the stock. Others will buy call or put options. My opinion is that predicting the market reaction to earnings is an extremely difficult task.