How I’m Playing AAPL Earnings

The Option Pit VIX Light Is Red, And Volatility Is Likely To Drop.


Hey Traders,


We do not normally delve too deep into equity volatility premiums.


However, based on the run Apple (Ticker: AAPL) has had, and its effects on the S&P 500 (Ticker: SPX), as well as the NASDAQ 100 (Ticker: NDX) …


Plus the fact that AAPL’s earnings report is in two weeks …


I want to look at what is going on with the CBOE Apple VIX Index.


The CBOE Apple VIX Index (Ticker: VXAPL) is the VIX of AAPL options.


It is the same calculation as the VIX, but instead it is based on AAPL options.


I like to look at it from time to time, especially when we are heading into earnings.


And while earnings are only a couple of weeks away, take a look at the chart of VXAPL:



While the index has gotten a pop in the last couple of days as earnings start to come into play, on the whole, premiums are really soft (cheap) on AAPL options …


Yet, take a look at AAPL stock:


What a run! AAPL has absolutely exploded higher over the last couple of weeks.


With implied volatility (IV) making for cheap options, and the stock currently trading at all-time highs, I think we are set to see some ugly reversal on earnings.


I am not sure how AAPL can report good enough earnings to hold this pattern, and options on AAPL are cheap.


If I was long a bunch of AAPL, I would be hedging around earnings …


The AAPL August 145-135 strike put spread costs $3.20, and I would be a buyer.


Your Only Option


Mark Sebastian


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