Wondering how to trade Apple (AAPL) over earnings tomorrow? Here’s your plan! (October 31, 2018)
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Here’s an Apple ( NASDAQ: AAPL ) for you. The company reports earnings tomorrow after the bell. It is really the last FANG stock that is holding up okay. I don’t want to associate it with the others because if it started with a different letter, if it was “Qapple” or something like that then it wouldn’t be in the FANG stock it would be something else so I don’t really care how it relates to Google ( NASDAQ: GOOG ) or Netflix ( NASDAQ: NFLX ) or “Faceplants” or any of that other stuff. This just kind of stands on its own because of what they do.
Here’s the deal: They report earnings tomorrow and the next time I do a Free Chart Video it is going to be after the earnings are out so I thought I would get this in now. The options imply a move that is about $11.00 or so, give or take. So let’s assume this is $219.00; that gives it an upside move tomorrow, this is after hours. I just look at the weekly options, they are plenty liquid so I can use those.
The weekly options that expire on Friday, they are looking at about an $11.00 move one way or another. That gives us about 230.00 on the upside and about 208.00 on the downside. If you look at this roughly, just kind of generally speaking, where was the bottom here? The bottom was down here. On the other hand, where was the top? The top was up here. So this stock is implied to move right up to test this prior high or right down to test this prior low.
What I am telling you is, you are taking a crap shoot, frankly, if you are going to buy this stock, or short it for that matter, prior to earnings just know that your downside on a short is limited to this. Your upside on a long is limited to this. Similarly, on the other side, your downside on a long is limited to this and your upside on a short is limited to this.
Now, it is not guaranteed by any means. If the company reports something unusual, in other words, something that the market doesn’t expect, you could get the stock run right through 230.00 and just keep on going. You optimists are going to look at that. On the other hand, if their earnings are disappointing or maybe their guidance is weak, maybe they are saying, “Well, we don’t think the holiday shopping season is going to be that great after all.” The stock could fall down to 210.00 and just keep on going. Then everybody would say, “Well, of course, it is going to do that, that is what all the other FANG stocks did,” everybody is a genius then.
What I am telling you is nobody knows for sure except the liars and the fools. You don’t; you may be very, very emotional; know exactly what Apple ( NASDAQ: AAPL ) is going to do. After all, I’ve owned this stock for years and years and it is just going to keep going up. It very well might but it didn’t here. The stock retraced 30 some percent, 35 percent back in 2015. I am not saying that it is going to do that here; the law of large numbers says that as it goes higher the odds of a big retracement increase but I am not saying that here.
What I am saying is, you can’t know whether this stock is going to go up or down. So if you are trading this pre-earnings and over earnings just know that that’s what your upside is. And by the way, so where’s the trade if you want to wait? Here’s the trade: If the stock gaps down, if it gaps BELOW 208.00 then look for some kind of an oversold bounce that is going to take you back inside this range.
If, on the other hand, the stock gaps or trades up above 230.00 look for a move that’s going to take you back inside the box. Because this is the box that the option market thinks the stock is going to be in. There is a lot of money buying and selling options; hedged, not hedged, making a directional bet, straddled, strangles, this or that. Just know that there is a lot of money betting on this stock staying between, we’ll say, 230.00 and 210.00, something like that.
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