Is Apple is the New Microsoft?

07/26/2013 8:00 am EST

Focus: OPTIONS

After a better-than-expected earnings announcement, it seems that Apple lovers are back, but Andrew Giovinazzi of OptionPit.com, reflects on how sad it is that it's no longer a zippy stock.

Back in the old days before the 3rd QE and Mario Draghi promised to support the euro, the SPX was trading 1329 and the market had one star, Apple (AAPL). Today feels like old is new again with AAPL lovers back after a not-awful earnings report and pretty much everything else down. Gold, bonds, oil, and stocks, in general, all are taking a breather from the recent run and the lack of great news locally gave investors pause. The strange thing is that Europe actually rallied yesterday on a pickup in demand. For whatever reason, AAPL was again the star and the post-earnings volatility acted like it.

This was a strange earnings cycle for AAPL. First of all, the earnings straddle set new recent lows as a percentage of the underlying price. Instead of keeping pace, the straddles kept melting into the announcement. It took all day for the ATM straddle to break even yesterday. Paper was much more willing to fade this announcement than the previous ones. That is usually a good signal that the gig is up for the big upside blowouts of the last four years.

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What has not changed is that AAPL still trades with a considerable upside and downside skew making the tails a bit more pricey.

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Without new products to boost revenue, AAPL is pretty much like Microsoft (MSFT). A company with great products that makes tons of money but will have a hard time delivering big revenue upside surprises. There is also not a lot of downside. It is a bit sad when the go-go stocks go to sleep but that is what it is looking like on the day after earnings. The IV 30 hit 10 month lows very quickly so there is not much expectation for movement anywhere.

The Trade
MSFT has been a good short put candidate for years. Maybe it is time for AAPL too. Just use put spreads.

Try to collect a dollar for the Aug 9 Weekly 410/420 put spread. Use the minis in smaller size if 100 shares of AAPL are too big. It is much easier trading short put spreads if you can take the underlying and write calls against what is left, if necessary.

By Andrew Giovinazzi, Chief Options Strategist, OptionPit.com

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