What Are the Options Saying About Apple (AAPL) Earnings?

04/20/2010 12:01 am EST


Jared Levy

Senior Market/Derivatives Specialist, Financial Markets Education, LLC

Cupertino, California computer and gadget maker Apple (AAPL) reports its highly anticipated second quarter earnings results today. Historically speaking, AAPL has been very vague in their guidance for upcoming earnings. Online brokerage OptionsHouse.com aggregates and supplies data from analysts that follow the stock; the 35-plus analysts that cover AAPL are estimating quarterly earnings per share of anywhere from $2.72 to $1.93, with the consensus estimate coming in at $2.43.

Ahead of the report, AAPL stock also received some last-minute positive earnings comments. Thomas Wiesel Partners nudged up its forecast for the March quarter to $12.06 billion in revenue, or $2.45 per share, from $2.44. The covering analyst also lifted his 2011 earnings projections as well as his price target on AAPL to $300 from $280.  He maintains an “overweight” rating on AAPL, but expects a pullback in the stock after the report. A Kaufman Brothers analyst also raised his 2010 earnings forecast on the Mac maker to $12 from $11.50 and took 2011 estimates up to $14; his 12-month price target is now $305.

Whatever your opinion is on Apple, the general investing public has been bullish on this stock over the past quarter.  Since January 4, the stock has climbed 16% from $212 to its current level of $246. The high and low for that period are $251.14 and $190.25, respectively. In that time, Apple released the iPad to hungry consumers; the device has sold over 500,000 units since its release earlier this month. And in the past quarter alone, Apple’s market cap has swelled to roughly $223.5 billion, which is more than the world’s largest retailer. This puts some weight on Apple’s shoulders to perform this quarter.

The options markets are predicting a fairly volatile earnings report, with the at-the-money 250 straddle in May trading for $19.25, or 7.8% of strike, at roughly 32% implied volatility on Monday. Since early March, the front-month implied volatility and the 30-day historical volatility have begun to change places and deviate further from one another.  The ten-day observed volatility has dropped down to just above 10%, as Apple stock’s momentum has slowed quite a bit.  Historically, AAPL has moved positively over earnings, on average about 5% or so, with minimum movements below 1.5% and maximum shifts above 10.5%.

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Technically, the stock is above its 20-, 50-, and 200-day moving averages and has been fairly steady in terms of volume and momentum over the past couple weeks. The daily average true range has been drifting lower down to its current level of $3.63.

Whatever strategy you employ to trade AAPL, approach with caution and tact as the options markets are expecting a slightly more dramatic move this period. Again, there are no guarantees as to which way it will go, although most of the analysts are leaning bullish, for what it’s worth.

By Jared Levy, contributor, ONN.tv

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