As similarly outlined in my Lesson in Volatility prior to Google Earnings article last week where a quick $810 could have been made overnight with no cash outlay (unmitigated risk on either side was assumed though!), the same play would have worked out nicely for Apple this week. Following Apple's earnings, the pundits and investors alike seemed pleased, but so much so that a sold put and sold call combination would have been unprofitable. To recap the rationale on the Google example which aptly applied here to Apple this week as well...

By Selling a Put option and a Call option simultaneously ~$10 from the current share price, investors netted an $175 gain in a single day, even though shares moved up following the earnings announcement!...

The options (see this article on How Options Work: Puts and Calls) on both the call (long side) and the put (short side) dropped in value the next day, even though shares rose 3.2% ($3.89) in trading.

How could the call option DROP in value as shares are rising??? Simply put, leading into the earnings announcement, implied volatility on AAPL options was somewhat high, and then following the announcement, it dropped off because the news was out. Put another way, just prior to earnings, investors figured there’s a chance that shares would skyrocket, hence they were willing to pay more money for an “out of the money” call option at the $130 strike thinking that perhaps shares would zoom right past and they could pocket the difference. When the earnings announcement was met with a yawn though, the likelihood of that scenario deteriorated quickly, hence, the much lower price.

Since AAPL was trading at $121 at the close, a trader could have sold the $130 call for 3.00 and sold the $120 put for 2.36 Wednesday toward the end of trading. On Thursday, the same call was worth .16 less and the put was worth 1.59 less for a quick $175. Of course with trading costs and taxes, nothing to write home about, but this play is scalable and the Google play with a similar strategy was much more lucrative at $810 in a single day for 10% on either side.


Disclosure: Currently long GOOG shares with a credit spread and long AAPL with a covered call (currently in the money; will have to reconcile before too long). I did not partake in either play, but this morning, following AT&T's earnings announcement where they cited strong iPhone revenue, my Premium Twitpub subscribers got an alert to consider a long position (or this play) in APPL which had earnings due out later in the day.


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