SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Betting on AAPL Earnings?


Apple is a company that tends to surprise Wall Street every time it reports its quarterly AAPL earnings, usually on the upside, occasionally on the down. As a result, the stock often makes big moves the next day - sometimes as much as 7-8%. How can you leverage those moves?

Given the power of stock options to leverage your investment dollars, you might be tempted to bet on the AAPL earnings report coming out today by buying Apple calls (if you think the stock is going up) or Apple puts (if you want to bet that it will go down).

 

That bet paid off handsomely in July 2016 when Apple reported earnings. The stock rose 6.5% the next day and the value of Apple’s weekly calls increased dramatically.

 

But that’s the exception, not the rule.

 

As I showed in one of my Seeking Alpha articles, buying either puts or calls just before Apple’s earnings report is, on average, a losing proposition.

 

When you look at longer timeframe, AAPL tends to move less than expected. Take a look at the screenshot from optionslam.com, showing the post earnings movement of the stock in the last 10 cycles:
 

Capture.PNG

 

 

The explanation for those numbers is simple. Over time, the options tend to overprice the potential post-earnings move. Those options experience huge volatility drop the day after the earnings are announced. In most cases, this drop erases most of the gains, even if the stock had a substantial move.

 

The last column shows the one day post earnings performance of the weekly straddle. As we can see, it has lost money 8 out of 10 times. Which means that 8 out of 10 times the stock moved less than expected. If I had to choose, I would take the other side of the trade (selling those options).

 

Jeff Augen, a successful options trader and author of six books, agrees:

"There are many examples of extraordinary large earnings-related price spikes that are not reflected in pre-announcement prices. Unfortunately, there is no reliable method for predicting such an event. The opposite case is much more common - pre-earnings option prices tend to exaggerate the risk by anticipating the largest possible spike."

 

"Trying to predict the future is like driving down a country road at night with no headlights on and looking out the back window." - Peter Drucker

 

Related articles:

 

Want to learn how to trade options in a less risky way?

 

Start Your Free Trial

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Great reversal signal – 50 MA with 8 EMA

    Options traders continually seek the elusive “sure thing” reversal signal. Of course, there is no such thing. But there are ways to use combined signals to identify likely reversal points. Add in strong confirming signals, and you have a reliable system for entering and exiting options trades.

    By Michael C. Thomsett,

    • 0 comments
    • 172 views
  • Why Bother with Annualized Return?

    Most options traders realize that annualizing returns does not reflect what you can expect to earn consistently. It is, however, a way to make relevant comparisons between outcomes of different holding periods.The first big question is, What is the basis for calculating a net return?

    By Michael C. Thomsett,

    • 0 comments
    • 1,323 views
  • Is 5% a Good Return For Options Trades?

    I'm often asked if 5% is a good return for an options trade. The answer is: it depends. One of the myths of options trading is that you should aim for at least 100% gain in each option trade, otherwise it is not worth the risk. Is it really the case?

    By Kim,

    • 0 comments
    • 399 views
  • How to Trade Volatility

    When trading options, one of the hardest concepts for beginner traders to learn is volatility, and specifically HOW TO TRADE VOLATILITY. After receiving numerous emails from people regarding this topic, I wanted to take an in depth look at option volatility.

    By GavinMcMaster,

    • 0 comments
    • 1,511 views
  • The Real Meaning of the Efficient Market Hypothesis (EMH)

    Most traders have heard of the efficient market hypothesis (EMH) and most believe they know what it means. In a nutshell, it is a belief that the market is “efficient” and that the current price of shares is a reflection of efficiency. Right? Wrong.

    By Michael C. Thomsett,

    • 0 comments
    • 994 views
  • Put Permanent Portfolio

    Harry Browne popularized the concept of the "Permanent Portfolio" decades ago by recommending an asset allocation of 25% stocks, 25% bonds, 25% gold, and 25% cash. In the 90's, the concept of "risk parity" also became popular with writings by Cliff Asness of AQR Capital.

    By Jesse,

    • 0 comments
    • 1,511 views
  • Does HFT Harm Individual Investors?

    What is the overall impact of High Frequency Trading (HFT)? Some traders believe that the use of algorithms in super-fast and powerful computers allows large hedge funds and other institutions to beat the market, implying that because these big traders can out-perform individuals, profits are unfairly gained. But is it true?

    By Michael C. Thomsett,

    • 0 comments
    • 1,393 views
  • Defining the Anchor Strategy

    Lorintine Capital and Steady Options have been trading the Anchor strategy for a number of years. During this time Anchor has evolved as we have learned more, in no short part due to the Steady Option’s members continuing questioning of the strategy, insights they provide, and a large group of individuals seeking to improve the strategy’s efficiency. 

    By cwelsh,

    • 0 comments
    • 784 views
  • The Life Of An Options Contract

    You may be asking yourself why am I reading this basic article about options trading? Well, if you’re anything like me, I didn’t learn options trading via the fundamentals.  Rather, I found a few strategies that made sense to me and started trading, without much regard to the underlying workings and details.

    By Drew Hilleshiem,

    • 1 comment
    • 2,902 views
  • Volatility Trends in the DJIA

    Options traders focus, often too much, on implied volatility to estimate the next change in option valuation. Is this always a wise policy? Options are derived from volatility in the underlying security (thus the term derivatives), a good question is: Why not focus on volatility trends in the underlying (historical volatility) to judge likely future valuation trends in options?

    By Michael C. Thomsett,

    • 0 comments
    • 1,672 views

  Report Article

We want to hear from you!


There are no comments to display.



Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoticons maximum are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

Options Trading Blogs