An Options Play Going Into Apple Earnings
Apple has an upcoming earnings announcement scheduled for July 22. Upcoming earnings announcements would normally mean that I would not be trading this stock, but thanks to the recent split and the current technical set-up, AAPL is providing what I think to be a good buying opportunity. Using options as my vehicle to trade, this is how I am be trading AAPL prior to the news release next Tuesday afternoon.
Prior to a 7-for-1 split, AAPL was trading around $650 with an all time high close to $720. At those prices, trading shares of AAPL was a costly proposition for small investors. Now at current prices near $95 AAPL is much more affordable, and in my opinion, will attract buyers purely based on its double-digit instead of triple-digit price. Even though the split happened on June 9, the share price remains under the psychologically significant level of $100, which could attract additional interest As demand for the stock increases, by both institutions and retail investors, so too should the price.
Technically, Apple looks promising, making new highs since the split. With the recent pullback, it's providing another opportunity for an entry. At $95, Apple enjoys numerous levels of support on the daily and weekly charts. The recent pullback on July 14 brought price back down to the 8-day exponential moving average. The 21-period EMA on the daily chart is at $93 and on the weekly chart around $86.
I purchased the $90 call options in AAPL for $5.05 with an expiry of July 25. At this time, the $90 call option is trading for $7.15. These calls are considered deep in the money with a strike price well below the current stock price and will move similarly to the price of the stock.
My goal is to watch the price of AAPL climb steadily over the next several days and exit the trade with Apple at $100. I am not expecting a monumental increase but a slow grind higher going into earnings. I will stop out of the trade early if the option loses $2.50 of value, or if the AAPL stock price breaks support at the 21-day EMA.
Return to Blog