Apple Stock Earnings Are Coming. Here’s An Option Trade To Take Advantage

apple (AAPL) stock is scheduled to report earnings on Thursday after the closing bell and the options market is priced at a 3.9% move in either direction. The implied volatility for this week’s Apple stock options series is around 47%. Apple typically trades with implied volatility of around 25%.

Today we will look at selling a cash-guaranteed put to take advantage of high implied volatility around the earnings announcement.

Guaranteed cash position for Apple stock

A cash-secured put involves selling a put option at the money or a call option out of the money, while at the same time allocating enough cash to buy the stock. The goal is to either make the put expiration worthless and maintain the premium, or surrender the stock and acquire it at a lower price than the current price. Cash-secured puts are very similar to a covered call and are very easy to understand once you know the basics.

It is important for anyone selling to understand that they may be allocated 100 shares at the strike price. For Apple stock, a trader who sells the October 31 put with a strike price of $260 would generate about $190 in premium per contract. A put put has a delta of 24, which means there is a 76% chance that it will expire worthless.

The seller would have to commit to buying 100 shares of Apple stock at a price of 260 if the buyer asked him to do so. The break-even price of the trade takes the strike price minus the premium received. This gives a break-even price of 258.10. This is 3.9% lower than Apple’s price this morning at approximately 268.50.

How trade works

If the stock stays above 260 at expiration, the put option expires worthless, leaving the trader with a 0.7% return on capital at risk in a few days. This amounts to a staggering 67% year over year. The main risk in trading is similar to full stock ownership. If the stock falls significantly, the trade will suffer a loss. However, the loss will be partially offset by the premium received for the sale.

Cash-secured buyouts are a great way to make a return on a stock that a trader will be happy to own. In this example, the trader could either make a 0.7% return in a few days, or he could buy Apple stock at a reasonable discount to the current price. If Apple stock trades below 260 and the put is set, investors can then sell covered calls in exchange for the position to generate more income.

Apple stock valuations

Investor’s Business Daily gives Apple stock a… Composite evaluation Of 91 of the best 99 possible, and Earnings per share rating From 84 and a Relative strength rating From 80. According to IBD inventory checkApple ranks second in its group.

Please remember that options are risky and investors can lose 100% of their investment.

Gavin McMaster is the founder and operator of Options Trading IQ, which provides instruction on how to buy and sell options. Follow him on X/Twitter at @OptiontradinIQ.

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