Tuesday, January 26, 2016

AAPL Analysis

Update 1/29/2016: AAPL reached 50% of its potential profit and I exited.

Shares declined by 3.8% over three days, or a -461% annual rate. The options position produced a 100% yield on debit for a +12,167% annual rate.

The consumer electronics company Apple Inc. (AAPL), headquartered in Cupertino, California, publishes earnings on Tuesday after the closing bell.

[AAPL in Wikipedia]


I shall use the MAR series of options, which trades for the last time 52 days hence, on March 18.


Implied volatility stands at 42%, which is 1.8 times the VIX, a measure of volatility of the S&P 500 index. AAPL’s volatility stands in the 85th percentile of its most recent range. The price used for analysis was $99.07.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

APPL has been in a downtrend since April 28, 2015. The stock reached its lowest low since the peak on Aug. 24, 2015, rallied up while staying below the April high, and then declined again while staying above the August low. The chart can be interpreted as either the resumption of the downtrend or a sideways pause. The beta is 0.91, meaning that AAPL correlates with the S&P 500 but with slightly narrower movements.

One of the last four earnings announcements has been followed by a price rise the next trading session. The pattern of changing analyst opinion caries no expectation of an earnings surprise.

Analysts in aggregate come down with a 47% enthusiasm index -- quite a high level -- with 69% of 32 analysts issuing a strong buy recommendation.

Iron condor, short the $110 calls and long the $115 calls,
short the $85 puts and long the $80 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money

The premium is $1.18, which is 24% of the width of the position’s wings. The stock at the time of entry was priced at $99.99.

The risk/reward ratio is 3.2:1.

The zone of profit in the proposed trade covers a $12.50 move either way. The biggest immediate move after each of the past four earnings announcements was $8.33, and the average was $4.33. After eliminating the maximum and minimum post-earnings movements, the core tendency is $4.13.

Decision for My Account

I have entered a position on AAPL as described above.

-- Tim Bovee, Portland, Oregon, Jan. !#, 2016


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.

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