Interesting AAPL Stock Trading Strategy

OK, folks, I’m going to go out on a limb here and tell you a strategy I’ve been cooking up lately for stock investing.  This has NOT been tried yet, but I intend to the next quarterly earnings cycle.  It involves Apple (AAPL) and “betting on all the horses at once.”

Sound crazy?  It may be, but hear me out.  In the past few quarters, Apple has either a) blown out their revenue and income guidance and shares rise hugely, or disappointed “The Street’s” analyst estimates of how awesome they should be and shares fall like a rock for a day or two.  This happened in April 2012 when they reported earnings and shares rose about $50 / share, then again in July when they “only” had a 21% increase in sales year over year, and shares fell 3-4%.  In both cases, this massive stock movement happened the morning after they reported earnings.

This strategy depends on a) a stock like AAPL which trades in the hundreds of dollars per share (currently around $665), b) a pattern of huge movements up or down, and c) stock options which are about to expire, so you can leverage hundreds of shares with options contracts for a little money.  Here’s what I plan to do (prior dates are listed here):

  • The day of the announcement, buy the shortest contracts I can (if it happens on April 18, buy April contracts that expire a few days later).
  • Wherever the stock is 15 minutes before trading ends (4pm EST), buy a set of CALL options at that price, and an equal number of PUT options at that same price (CALL assumes the stock will go up, PUT assumes it will go down).  Say $1,000 each way.
  • The morning after the announcement, sell everything – one of them WILL vastly go up in value – so much so that you won’t care about the loss from the other.

Now, this will only make sense if the stock moves quite a bit, but it historically has.  Best times to do this are April (when iPhone / iPad sales are huge for the past few months) or July / Oct (when sales are typically lower in anticipation of the next iPhone in the fall).  I truly think this will result in a huge net gain for just a little invested.  Try it!

UPDATE: On January 23, 2013, Apple delivered it’s quarterly earnings report for the Oct-Dec 2012 quarter.  As of the morning of the 24th, it was down $60 / share.  So this strategy would have indeed worked.  Personally, I think the market overreacted.