Betting on a stock this volatile on a day like this is an exceedingly dangerous game
Trading in Apple (AAPL) was halted on July 19 last year, just before the company released its third quarter earnings report. When trading re-opened, the stock immediately jumped nearly $23 (6%). On October 18, when Apple released its fourth quarter earnings, the stock fell more than $33 (8%) in after-hours trading.
So as you can imagine, there's a lot of interest in what's going to happen at about 4:30 this afternoon when Apple announces the results of what is widely expected to be the best quarterly earnings report in the company's 36-year history. (See here.)
And there's no shortage of free advice. Dozen of Apple-related articles have been posted on Seeking Alpha over the past few days, most of them suggesting complicated derivative plays. Sample headlines:
Options: How To Maximize Your Gains On Apple's Earnings
Should You Sell Apple The Day Before Earnings? History Says Yes
A Cautious But Profitable Earnings Trade
A Safer Way To Bet On Apple's Earnings
Apple: Have You Considered Weekly Options?
Selling Apple Options: When Implied Volatility Doesn't Mean Squat
On his widely-watched Mad Money show Monday night (video here), Jim Cramer advised day traders to sell Apple ahead of earnings while OptionPit's Mark Sebastian suggested that investors buy Apple calls. "From my perspective," quipped a regular on Investor Village's AAPL Sanity board, "both of them seem to be attempting to lead the sheep to the wolves."
The fact is, any large movements in Apple shares in after-hours trading today are likely to be driven by high-frequency computerized trading programs that buy and sell enormous quantities of stock in milliseconds. Trying to beat them at their own game is a fool's errand.
Whatever happens, we'll be watching. Tune in here after the markets close for our blow-by-blow report.
Buying puts or calls just before the numbers come out is a fool's game
Click to enlarge. Source: Kim Klaiman via Seeking Alpha
Apple (AAPL) is a company that tends to surprise Wall Street every time it reports its quarterly 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 5% and 6%.
Given the power of MORE
Philip Elmer-DeWitt - Jan 15, 2012 8:12 AM ET
Even for a stock as volatile as Apple, Wednesday was a weird one
According to Terry Gregory, who keeps track of such things at AAPLInvestors.net, Apple (AAPL) was set to register its 8th highest close of all time -- $408.25 -- Wednesday before the selling started. By 4 p.m., it had fallen to $402.64 a share, its 19th highest close.
Gregory's one-word comment on Investor Village's AAPL Sanity board: "Ugh."
Subscribers to the theory of MORE
Philip Elmer-DeWitt - Dec 29, 2011 8:24 AM ET
Strike prices range from $335 to $400 as traders scramble to deal with a market in free fall
Monday 10:30 a.m. snapshot. Source: thinkorswim.com. Click to enlarge.
A hedge-fund trader hoping to make some quick money in Apple (AAPL) weekly options would be hard-pressed to make sense of the chart at right, a snapshot of thinkorswim.com's AAPL options board taken at 10:30 a.m. Monday morning.
The bottom two graphs show open interest in MORE
Philip Elmer-DeWitt - Aug 8, 2011 11:35 AM ET
In 52 weeks, Apple shares closed within $1 of the so-called Max Pain range 39 times
Max Pain. Click to enlarge. Source: Travis Lewis
To ordinary investors, the trading in Apple (AAPL) shares last week must have looked a little crazy. On Monday, when the Dow was up, the stock fell, only to shoot up $9.98 (3.17%) the next day. On Thursday, when the Dow was down, the stock was up MORE
Philip Elmer-DeWitt - Jun 25, 2011 8:12 AM ET
With the Dow up and no negative news on the wire, the stock fell off a cliff Thursday
Thursday was another one of those bizarre trading days for Apple (AAPL). The stock opened higher, flirted with some prices north of $328 in the morning and made it through the early afternoon without suffering much damage, despite the turmoil in Greece.
Then, at about 1:50 p.m., the volume jumped and the stock fell MORE
Philip Elmer-DeWitt - Jun 16, 2011 3:43 PM ET
Who's behind the weekly Max Pain phenomenon that has become the tail that wags the dog?
Click to enlarge. Data: tickerspy.com. Charts: PED
In our ongoing quest to understand what part the trade in weekly Apple (AAPL) options plays in keeping the company's stock price from reflecting its performance (see here, here and here), we had a chat the other day with Mark Sebastian, a former market maker at the Chicago MORE
Philip Elmer-DeWitt - May 27, 2011 8:53 AM ET
A case study in how the options market reacts to breaking news
AAPL Max Pain before and after the explosion. Source: BSL
We've written a lot lately about how traders buying and selling options seem to be driving Apple's (AAPL) share price (see here, here and here.) So we thought it might be instructive to look at what happened on a day when Apple's share price took over and drove the MORE
Philip Elmer-DeWitt - May 23, 2011 9:00 AM ET
New evidence suggests that since last summer the tail has been wagging the dog
Souce: optionpain.com
If you're any kind of Apple (AAPL) investor, you should be aware of the chart at right, even if you don't know a put from a call and don't really care to.
It shows the value in millions of dollars as of Wednesday morning of the outstanding Apple options that expire this Friday, with the magenta MORE
Philip Elmer-DeWitt - May 18, 2011 7:36 AM ET
If you're looking for evidence of manipulation, Friday's close was picture-perfect
Volume rose sharply and Apple's share price collapsed in the last half hour
"The easiest way to think of options," wrote The Market Skeptics's Eric deCarbonnel in a prescient 2009 post, "is as a type of insurance. Investors pay a premium to protect themselves against sharp swings in the market. If these sharp swings don't happen, those selling options (option market MORE
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| Company | Price | Change | % Change |
|---|---|---|---|
| Bank of America Corp... | 7.95 | -0.16 | -1.97% |
| Microsoft Corp | 31.27 | -0.17 | -0.54% |
| Ford Motor Co | 12.28 | -0.25 | -2.00% |
| General Electric Co | 19.39 | 0.17 | 0.88% |
| Citigroup Inc | 32.36 | -1.00 | -3.00% |
| Index | Last | Change | % Change |
|---|---|---|---|
| Dow | 12,938.67 | -27.02 | -0.21% |
| Nasdaq | 2,933.17 | -15.40 | -0.52% |
| S&P 500 | 1,357.66 | -4.55 | -0.33% |
| Treasuries | 2.00 | -0.04 | -1.96% |
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