I just ran this to the folks at Options Trading Coach... and thought you may be able to benefit, too.
Note, we just advised Coach readers to bank more than 20% gains in less than three weeks with these trades.
But, you can use this strategy in the future...
We knew two things when we picked up December 480 calls and January 495 calls.
One, that Apple could easily run to $500 on new product offerings.
And two, that with earnings around the corner, we had the ability to trade volatility. (Note that it's not often we trade earnings (very unstable)).
Part of the reason we can trade volatility is because around earnings, the options of a stock will price in the higher probability of a greater move. Then, after earnings – even if the numbers are great – the volatility can deflate and strip our options of hard earned gains.
What options traders (at any skill level) need to understand is that Wall Street traders (the ones that calculate the option prices) are very much aware of the earnings event and the historical statistical probabilities.
I feel more confident trading Apple pre-earnings knowing that people are expecting top numbers, than I would ahead of anything else.
The Only Reason It's Not Higher Today...
Today, despite record iPhone sales over the weekend, BGC Partners cut its rating to hold from buy...
Here's what they had to say:“We no longer suggest being overweight shares of AAPL and see that near-term downside risk overweighs upside reward. Shares have gained 14% since October 7, and increased 31% year-to-date. With the largest market capitalization for a U.S based company at $391 billion, any hiccup in its growth is likely to provide an opportunity to add to positions at a better price.The company has to constantly set records just to meet expectations. There is nothing wrong with Apple’s business model or execution, but we do see that sentiment is overwhelmingly positive and shares are within 7% of our $450 price target. We believe that it is possible shares pullback below $400, possibly even this week after the earnings report on Tuesday post-market, and we would seek to be buyers at levels below $400.”
The last time an analyst downgraded Apple – JMP Securities – was in March 2011. That was before Apple ran from $330 to $420.
The time before that was October 2010. That was before the stock ran from $270 to $420.