AAPL Pre-Earnings Option Spread Opportunity
Apple Inc. (AAPL), a tech giant renowned for its innovative products, is set to report its next earnings report on Thursday, 2-Nov-2023, after the market closes. To stay ahead of the curve, we decided to run a scan to identify an option spread that could potentially benefit from the expected climb in implied volatility leading up to earnings day. By utilizing the MarketChameleon opportunity alert system, we identified a pre-earnings calendar spread that stands to gain from an anticipated increase in implied volatility ahead of earnings.
The Option Spread:
Sell 27-Oct-23 175 Put (Expires in 12 Days, Expires Before Earnings)
Buy 03-Nov-23 175 Put (Expires in 17 Days, Expires After Earnings)
The strategy involves selling the October 27th 175 Put, set to expire before the earnings announcement, and simultaneously buying the November 3rd 175 Put, which encompasses the earnings date. Ideally, we want the October Put to expire worthless, with AAPL trading above the 175 strike price. This allows us to retain the credit from the sale, while the November 3rd option increases in value as it approaches earnings.
What Makes This Spread Attractive
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Attractively Priced: We conducted an analysis using our database to determine the historical value of a similar spread. Our findings revealed that the average value of this spread is $1.61. Currently priced at $1.37, it implies a market discount of -15%. This suggests that the spread is attractively priced, potentially offering value to investors.
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High Potential: We also assessed the potential return on the spread, assuming AAPL's stock price drifts ideally to 175, the October option expires worthless, and implied volatility reverts to its historical median value. Our analysis indicates a potential return of +221%, which is quite substantial.
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Limited Risk: Additionally, the time spread comes with a defined risk up to the October 27th expiration, offering traders limited risk.
In Conclusion
The AAPL calendar spread presents an opportunity for traders looking to capitalize on the options implied volatility ahead of the earnings announcement. With its attractive pricing, high potential return, and limited risk, this strategy offers a compelling pre-earnings trade. It's important to note that options trading carries inherent risks and is not suitable for all investors. It's advisable to conduct thorough research and consider your risk tolerance before executing any options strategy. As always, consult with a financial advisor or professional to ensure the strategy aligns with your investment goals and risk profile.
Disclaimer: This article is for informational purposes only and should not be considered as financial advice. Options trading involves risks, and you should consult with a qualified financial professional before making any investment decisions.
