The market is taking a breather following the recent back-and-forth 1% pops and drops as the bulls and bears await Friday’s GDP (Gross Domestic Product) numbers. Thursday’s unemployment figures could move the market but the GDP report will carry more weight.
With the indexes near the top of their ranges, we should have more of a clue by the weekend if the current rebound has enough momentum to push new all-time highs again or if next week and the start of May will lead to a test back down to support or the bottom of the current range.
Apple (AAPL, $401.11, down $5.02) reported earnings of $10.09 a share, on a revenue of $43.6 billion, versus $12.30 a share, on a revenue of $39.2 billion, in the year-ago period. The suit-and-ties were looking for $10.01 share on sales of $42.4 billion. The company beat revenue estimates by over $1 billion, very impressive, and promised $100 billion to shareholders by the end of 2015 in dividend payments.
The devil in the details was the fact that Apple said revenue from the current quarter would come in below the prior year. This would be the first time in years revenue will come in lower than the previous year’s quarter and the fact that the company won’t be releasing any new products until the fall killed the buzz in after-hours trading last night which has carried over into today’s session.
There were a ton of talking heads pushing Apple ahead of the quarter that were hoping for an 8%-10% pop but the bearish camp held tight and have pushed a low of $392 today. We would have liked to have seen a 10% move in Apple as it would have made more of an impact on the market but the tight range in the stock has carried over into the indexes.
We said on Monday morning it might be best to sell the April 440 calls (WEEKLY) (AAPL130426C00440000, $0.15, down $3.25) and the April 360 puts (WEEKLY) (AAPL130426P00360000, $0.20, down $1.55) ahead of Apple’s announcement and if you had sold these options before Tuesday’s close you could have collected $3.40 for the calls and $1.75 for the puts for a total of $5.15 in premium. If you bought the options back today you would spend $0.35 to cover.
In laymen terms this means by selling 10 contracts of each call and put option you would have collected $5,150 into your trading account and today you would give back $350 to close the trade. Your profit would have been $4,800.
Of course, this could have been a disaster of a trade if Apple would have moved above $440 or fell below $360 because it was a “naked” position. You also have to be approved to do this type of trading and the capital to cover in case the trade does go against you.
There are less expensive trades on selling options without as much risk and we may profile a few of these trades from time-to-time as a way to add income to your trading account but please remember these are the riskiest of trades and they won’t be official recommendations.
We do have a New Trade today on a stock at 52-week highs and we are going to go with the June/ August options to play a further upside move. Shares are liquid and the option spread is within 10 cents. The June calls are “cheap” options as you should be able to get into them at 25-30 cents. The stock is at $14.45 and the June 15 calls will double if the stock can make it to $15.50 by mid-June.
This is only a $1 move from current levels so we love the risk/reward the options offer.
This is the leverage options provide as shares would have to push $30 for you to double our money. By using near-term calls, if the stock moves just 8%-10% from current levels we will make 100+% with these options.
As we head to press, the Dow is down 42 points to 14,677 while the S&P is down a point to 1,577. The Nasdaq is off 10 points to 3,258 while the Russell 2000 is advancing a point to 930.
Subscribers, check the Members Area for the New Trade and use limit orders to get the best fills. We will be back in the morning with our next update but we could have a Weekly Wrap Trade or Profit Alert later this afternoon.