An Apple Play Ahead of Earnings

03/13/2014 8:00 am EST

Focus: OPTIONS

Bob Lang

Founder and Chief Analyst, Explosive Options

Apple is the stock that everyone loves to hate and hates to love—and it looks poised to make a move, notes Bob Lang of ExplosiveOptions.net.

Which direction, you ask? Good question, but the odds seem to favor a move higher, as the chart is showing us complete exhaustion (stalemate) at the current level. Volatility is at a very low level here, but with higher lows on the chart and not much selling pressure, it won’t take much to get it going. The ideal play is around volatility, hence we’ll consider a strangle or straddle.

We could take the opposite approach, though. Selling premium with our play focused on direction, is a great way to play the stock out in time. Right now, with volatility so low, you are not getting paid correctly. For a directional bet, it would be best to just buy the call or put outright and wait. With reasonable option prices, you are not paying extra for the usually high-priced volatility. In fact, Apple (AAPL) volume is as low as it’s been in quite some time, indicating the market is not expecting big price swings. However, with earnings on the horizon (in about six weeks) we could see some interest in this stock once again.

chart
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Clearly the burden is on the stock to prove itself. It is a bit of a leap of faith to say that something is going to get this moving. Company news will likely help move the stock. There is some resistance (take a look at the chart) at 540, 550, and 570, but this perennial favorite may start to get a lift with several positive days in a row.

By Bob Lang of ExplosiveOptions.net

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