IWO Video: 2 Ways to Play AAPL Earnings

Here’s a rough transcript:

The markets showed strength into the close, with the dow closing at 9265 with a 413 point gain. The move was on lower volume so there may be a retracement, although not much is certain in this market. We have been seeing the credit markets easing, with the LIBOR and ted spreads coming out of the atmosphere, and the VIX weakened, dropping 17 points to finish at 52.97.

These are all optimistic things if you are a bull, but I still think that the markets remain volatile and we can reverse at any moment and you can lose any gains from last week. So it might be wise to hedge accordingly. You can sell calls, buy puts, or sell spy call verticals to reduce your delta exposure.

If you’ve been following my market calls on stocktwits, I decided to buy shares outright in NOV, national oilwell varco. They proceeded to rally 22% so I’m pretty happy with that. Part of my trading plan was once it reached 30 I would sell calls against the position. So what I did was sell the December 35 calls at 3.90 into the close, which puts my basis down to 20 bucks a share. If the stock continues to rally and I do get called away in December, it’s a 73% return on basis. That’s a helluva trade.

I’m also looking to sell verticals against the double shorts when the reach extreme levels. That worked out for me over October expiration and it’s a pretty good way to generate income, especially if the move like they do. If you can time it properly you can get into risk-free iron condors, which is perfectly feasible in this market environment. So I’ve set my price levels to the up and downside for SMN and SKF and will put in limit orders when they reach an acceptable price point.

We also had AAPL earnings coming up tomorrow after the close and will probably dictate where the market will be headed. Let’s look at some potential earnings plays. The November 100/95 strangle can be sold for about 1700 with breakevens at 78 and 117, which amounts a 39 point range. If you were bullish on the play and didn’t mind acquiring stock you could sell another 100 put which would put your downside breakeven at 83, which seems to me to be a great price point to get into the stock. Another spread based play you could try is a double calendar. The 115/85 double calendar looks like a nice play and gives a little more upside range with a break even at 132. After expiration your total debit is about 360 and leaves plenty of room to the upside. And you can play with different spreads depending on how wide you think aapl will move after earnings, but a double calendar strategy does seem like a good one.