Premium Earnings 1-31-17: Apple and Electronic Arts

Two names today that report after the close tonight, Apple, $AAPL, and Electronic Arts, $EA.

Apple, $AAPL

Apple, $AAPL, completed a bearish Shark harmonic in October, then retraced over 50% of the pattern. It touched its 200 day SMA and has been going higher ever since. Into earnings it is pulling back slightly, still above its 20 day SMA but it has a RSI that is pulling back from an overbought condition in the bullish zone, while the MACD is flat but about to cross down. There is support lower at 120.25 and 119.35 followed by 118 and 115.65 then 112. There is resistance at 122.50 and 123.20 followed by 127 and 129.65 then 133. The reaction to the last 6 earnings reports has been a move of about 5.00% on average or $6.05 making for an expected range of 114.75 to 127. The at-the money February 3 Expiry Straddles suggest a smaller $4.35 move by Expiry with Implied Volatility at 48% above the February at 24%. Short interest is low under 1%. Open interest is spread from 115 to 122 on the Put side, biggest at 115 and 120. On the Call side it is found from 120 to 125 and larger.

Trade Idea 1: Buy the February 3 Expiry 120/117 1×2 Put Spread for $0.20.

Trade Idea 2: Buy the February 3 Expiry 120/117/114 Put Butterfly for $0.50.

Trade Idea 3: Buy the February 3 Expiry/February 125 Call Calendar (35 cents) and sell the February 3 Expiry 115 Put for a 10 cent credit.

Trade Idea 4: Buy the February 3 Expiry 121/125 Call Spread ($1.60) and sell the February 3 Expiry 116 Put for a $1.00.

Trade Idea 5: Sell the February 3 Expiry 115/125 Strangle for a $1.00 credit.

#1 and #2 give the downside with #1 using leverage and may put you in the stock at 114. #3 and #4 give the upside may put you in the stock at 115 or 116. #5 is profitable on a close from 114 to 126 at Expiry. I prefer #2 or #3. I own stock and a February 3 Expiry 120/116/112 Put Butterfly already.

Electronic Arts, $EA

Electronic Arts, $EA, gapped higher in May and then rose steadily to a top at the beginning of October. It pulled back from there, and is rounding out a reversal to the upside into earnings. It has a RSI that is in the bullish zone, and a MACD that is rising. There is support lower at 81.65 and 78.40 followed by 75.50. There is resistance above at 86 then free air. The reaction to the last 6 earnings reports has been a move of about 5.25% on average or $4.40 making for an expected range of 79.25 to 88.15. The at-the money February 3 Expiry Straddles suggest a similar $4.40 move by Expiry with Implied Volatility at 68% above the February at 36%. Short interest is low at 3.0%. Open interest on the Put side is focused at 80. On the Call side it is focused at 84 and much bigger, but also big at 85.

Trade Idea 1: Buy the February 3 Expiry 84/86/88 Call Butterfly for 35 cents.

Trade Idea 2: Buy the February 3 Expiry 83/80.5 1×2 Put Spread for free.

Trade Idea 3: Buy the February 3 Expiry/March 85 Call Calendar ($1.28) and sell the February 3 Expiry 80 Put for 40 cents.

Trade Idea 4: Sell the February 3 Expiry 80/85 Strangle for a $2.40 credit.

#1 gives the upside short term while #3 looks longer and may put you in the stock at 80. #2 gives the downside with leverage and a possible entry at 78. #4 is profitable on a close from 77.60 to 87.40 at Expiry. I prefer #2, #3 or #4.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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