Trading Apple into Its Earnings Report

07/22/2013 8:00 am EST

Focus: OPTIONS

Mark Sebastian

Founder, OptionPit.com

Typically ahead of earnings, whether there are weekly options or not, options on AAPL will catch a big bid, writes Mark Sebastian of OptionPit.com.

Prior to earnings, I expect to see IV in Livevol somewhere north of 40 into an earnings cycle. This is not happening in AAPL options right now. Despite earnings being on Tuesday, 30 day IV is below 30%.

The market is short every option on the planet into earnings. Along with the low vol, AAPL stock volume is at two-year lows and option volume is tanking. Something is changing in AAPL. Right now the July26 430 straddle in AAPL is about 20.00. Historically, that is WAY too cheap. The straddle should be trading near 25 or 26 if one were to look at the past. One has to wonder whether the dream is officially over in AAPL.

chart
Livevol® www.livevol.com
Click to Enlarge

Basically, AAPL may not be going to 0 or 700, it might simply be going NOWHERE. If this is the case, the stock might be in the middle of a cyclical change and slowly turning into a Microsoft in the mid-2000s, or worse yet, a utility.

The Trade
With IV this low, I might not buy more straddles (I have a few on) but I certainly wouldn't try the short premium play. Without an IV bid up into earnings, there can't be much of a sell off. The trade is not there. Thus, the trade might be no trade.

If one was to execute a trade, I might look at the AAPL 430 straddle paying 20.00 and try to flip out of it before Tuesday.

Positions: long AAPL straddle

By Mark Sebastian, Blogger and Contributor, OptionPit.com

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