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Thursday, April 27, 2017

ALERT: $AAPL Ahead of Earnings May 2 Get the Analysis, Charts and Options Setup

Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications has Earnings on 5/2/2017. The company’s stock is currently trading around $143.79 in a 52 week range of $89.47-$145.46. The stock has been shown on fire over the past year with shares up 52.41% over the past 12 months.  I think that the upside has topped out and AAPL will sell off on Earnings. To confirm this signal we will analyze the stocks historical movement record on earnings, the current expectations for movement being priced into the options market, the technical setup, and institutional order flow into the event.
First we will examine the stocks historical earnings performance record. We can see that over the past 8 quarters the stock has sold off 5 times on earnings day with an average move of 4.7%. This does not tell us that the stock is guaranteed to sell off this quarter but it does show us that there is a slight bearish bias in the performance of AAPL on earnings day. This means that as we work through the rest of our analysis will have a bearish bias.
With a sense of how the stock has moved on earnings day in the past we can calculate the expected movement for this quarter. To best isolate the expected movement in AAPL we will use the shortest dated options that still contain the catalyst event. In this case we will use the May 5th weekly expiry. To measure the market makers expected move we will need to calculate the price of the at the money straddle. We looked at the AAPL May 5th strike straddle in the May 5th weekly expiry and it is implying a whopping $5.50 move.
The straddle is marking around $5.50. This implies an expected move of around $5.50. This implies a move of around 3.9% by next Friday’s expiry. Since this is in line with the stocks historical movement record we know that there an opportunity to put on a good reward vs risk setup AAPL.
Upside target = $144 + $5.50 = $150.50
Downside Target = $144 – $5.50 = $138.50

With these targets in mind we can look at the chart in AAPL to see if trend agrees with the bearish bias in AAPL price action.

Here we can see that the stock is trading above the Ichimoku Cloud and is firmly in bullish territory, but having problems getting through the $145 level and I think it has topped out.
I think that AAPL will move, sell off on Earnings, but I want to make sure I am getting a favorable reward to risk setup.  I think the stock will move lower, but I am not sure how much

Potential trade: Selling 1 AAPL 5/12/2017 143-144 Call Spread for $.60 credit

Risk: $40 per 1 lot
Reward: $60 per 1 lot
Breakeven: $143.60
This kind of analysis can be used to find setups like this ahead of earnings and other catalyst events.

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