Schaeffer's Trading Floor Blog

How Apple Inc. (AAPL) Option Players Are Preparing for Earnings

AAPL will unveil its fiscal third-quarter earnings report after tonight's close

by 7/22/2014 11:21 AM
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Tech titan Apple Inc. (NASDAQ:AAPL) will take its turn on the earnings stage after tonight's close, and ahead of the highly anticipated event, the stock was seen 0.4% higher at $94.33. Longer term, AAPL has been doing well since getting an 8.2% single-session post-earnings boost in late April, with the shares up 26% from their April 23 close at $74.96. Not surprisingly, calls have been preferred over puts, and in today's session, the former are outpacing the latter by a nearly 3-to-1 margin.

What's more, traders are showing a preference for short-term contracts, as evidenced by the stock's 30-day at-the-money (ATM) implied volatility (IV), which is up 1.3% today to 28.3%. However, this reading is far from an annual peak of 35.6% reached on Oct. 25, which immediately preceded AAPL's fiscal fourth-quarter earnings report.

Drilling down on specific strikes in both the weekly 7/25 and August series of options, the 95 level has been popular among call players. Specifically, 44,771 contracts currently reside at the weekly 7/25 95-strike call, while 50,310 calls make up open interest at the August 95 strike. For those buying to open the contracts, the goal is for AAPL to rally back above $95 -- and through its 10-day moving average, currently hovering at $94.79 -- by the respective expiration dates. Conversely, for those selling to open the contracts, the expectation is for AAPL to remain south of the strike throughout the options' lifetimes.

Outside of the options pits, sentiment remains bullish toward the iPhone peddler. Short interest, for example, accounts for a low 1.9% of the stock's float, and would take 2.5 days to cover, at AAPL's average daily pace of trading. Meanwhile, 79% of analysts covering the equity maintain a "buy" or "strong buy" rating, and the consensus 12-month price target of $99.57 stands in territory not charted by the stock since September 2012.

Looking back over the past eight quarters, AAPL has had some big single-session post-earnings price swings in both directions, including the previously mentioned 8.2% pop in April, as well as an 8% plunge in January. On average, though, the stock has shed 1.9% in the session subsequent to earnings, which swings to a 0.8% gain when going out one week. For Apple Inc.'s (NASDAQ:AAPL) fiscal third quarter, the consensus estimate is for a per-share profit of $1.23 -- a 16-cent improvement over the company's year-ago results.

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