Wednesday, January 19, 2011

UPDATE: Apple (AAPL) - Earnings Review

AAPL is trading $341.25, up 0.20% with IV30™ down 18.5%. The LIVEVOL® Pro Summary is below.


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Yesterday I wrote about AAPL and the company's trading pattern on earnings. You can read that article by clicking on the title below:

Apple (AAPL) - Earnings Vol Trading Patterns and Steve Jobs News

The gist of the pattern was this:

The short "one strike above ATM" straddle has been a winner 9/9 times, with an average one-day gain of 20.8% and a relatively muted range of [14%, 28%]. The Stats are available in the prior post.

AAPL closed $340.65 yesterday, so the straddle that was one strike above ATM was the Jan 345 straddle. On close, that straddle was worth ~$15.45.

The Options Tab (below) illustrates the prices as of ~ 2:40pm EST today (1-19-2011).

We can see the Jan 345 straddle is now worth ~$6.90 so the sale and re-purchase one day later was a 55%(ish) winner. The Jan vol has come down 29.4 points, or 48% with the earnings report out. Feb vol is down 6.1 points, or 19%.

I've included the Skew Chart from yesterday and today (below).

Just an easy visual representation of how much the front month vol came down relative to Feb and March. Again, this is expected behavior.

Ultimately, the short straddle that's one strike above ATM proved to be a winner again. That makes 10/10. Keep in mind, even though the trade has won 10/10 times, that doesn't mean it's a good bet. To get a little statistical here, these are 10 samples from an unknown probability measure. A reasonable argument could be that the ~ 20% average win (from stats on prior blog) isn't enough to compensate for the capital risked.

We examined a number of butterflies to try to replicate the short straddle bet while not being naked short (or long) options.  Selling the 340 or 345 strikes proved to be a winner even after accounting for the cost to cover with the wings. The nice thing about earnings... there's an opportunity to gamble 4x a year... We'll re-visit AAPL again in April.

This is trade analysis, not a recommendation.

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  1. I did the calendar-straddles....Sell the Jan atm straddle, buy the same in Feb. AAPL was moving so it turned out to be 335,340,and 345 straddles. It worked out good and closed most but not all positions today 1/19.

    I'm not sure why you choose butterflys vs straddles. I am not very good at comparing risk/reward for alternate scenatios. Your thoughts are welcome


  2. A butterfly is generally intra-month. A calendar, of course, is inter-month. Glad you made a winning trade, Chad!

  3. sold the 340 straddle and bought the Feb 335 345 straggle for a nice 1 day profit - I'm thinking of doing the same trade with GOOG today but with the weeklies on the strangle - any thoughts/ Jan 630 straddle is $31 - Jan weekly 625/635 straddle roughly 31 too - high gap risk on goog in my opinion

  4. sb0007 -
    Thanks for the note. I haven't taken the time to look at GOOG. Perhaps I will, but until then I don't feel comfortable commenting. I would def not be naked long or short options on earnings (though it doesn't sound like that's what you're doing).