AAPL Pre-Earnings, a time to be BEARISH! (by MoneyMiser21)

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Wait…

WHAT?!??!?!

YES, you read that headline correct. It’s time to be BEARISH of Apple.

WAIT! Don’t click away. I’m not crazy, and you’re not seeing things after downing one too many to get through the long Easter weekend. The numbers back this up.

Tuesday, April 23rd will mark 7 days until Apple’s earnings date April 30th.

Now I know most of you have seen friend of Slope CMLviz data about how getting long a 40-delta call seven calendar days before earnings in NASDAQ 100 stocks has returned marking beating performance since 2007.

And for names like $AMZN, $GOOG, $MSFT, $INTC, $SBUX it is a profitable strategy.

AAPL is the major glaring exception. And because of what took place back in January, it’s an even more enticing short before its earnings.

First, take a look at the base pre-earnings stats in $AAPL since the start of 2007, when buying calls seven calendar days before earnings, using the options chain nearest to 14-days (two weeks because Apple’s earnings often fall on a Tuesday) and closing when you either hit 40% profit, or the day of earnings.

A total of 49 trades, with a greater than 50% win rate… but the 60, 50, and 40-delta calls show an overall negative return. The 30 and 20-delta calls’ total returns are positive, but nothing worth trading.

But if you flip to the dark side… WHOA! These puts are not for schmutz!

Not only does the data show an overall positive return with a less than 50% win rate, but the size of the average win is nearly 50% greater than the average loss!

Now I hear you thinking, “but Money what’s this about January you wrote earlier?” Well that’s about the reaction after earnings.

Apple gapped up and closed greater than 5% after its 1st quarter earnings release. You’d think that would portend bullish sentiment heading into the following earnings… but you’d be wrong.

There have been 13 times since the start of 2007 where $AAPL has had a pre-earnings period following a prior post-earnings gap-up of 5% or greater. Not only is the win rate worse than the base for all occurrences, but the total return is nine times worse or lower!

Are you starting to get the picture now?

The puts on the other hand show nearly the same total return with far fewer occurrences, and an average win more than twice the average loss!

The put spreads show a similar boost in total return and average win versus loss.

The moral of this story? Long can be wrong, and timing is everthing.

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