[Options Strategy] Is Apple worth buying ahead of earnings?

Options show that the market has high expectations for Apple

Apple $Apple(AAPL)$ , which reports on Nov. 2, is expected to report revenue of $8.931 billion, up from $8.18 billion in the previous quarter, and earnings per share are expected to be $1.39. That's up from $1.26 in the previous quarter.

Because Apple has met or exceeded revenue and earnings per share expectations in three of the last four quarters, coupled with the iPhone 15 release, the market's expectations for this earnings report are higher.

While Apple shares are well off their highs for the year, the stock is still up more than 30% this year. The 2023 Apple price opened at $130.28 and has been steadily rising for most of the year, peaking at $198.23 on July 19. But it is currently trading in the mid-range of $173.69.

Historical earnings share performance

Apple's average stock price change before earnings is expected to be ±4.6%. The actual change averaged ±4.3%, 0.3% lower than the average forecast change. Shares rose or fell ±1.7% after the opening bell. The average 1-day return of the straddle strategy is -0.4%, so the straddle strategy is not suitable for Apple's earnings report.

According to historical data, the probability of average daily increase in the week before the earnings report is higher.

Option expectation

Implied volatility in options expiring during the earnings week was 30%. Apple's expected stock price trend during the earnings announcement is ±7.4 dollars, and the expected price range is 166 to 180.8, less than 5% of the current stock price. That's a lower drop than other tech stocks' earnings expectations.

In the report week expiration (November 3) options, the open position of call options accounted for 61%, and the exercise price of the highest open position was 180, consistent with the expected increase, of which the call option accounted for 73%.

$AAPL 20231103 180.0 CALL$

November weekly option (November 17) the highest open position exercise price is also 180, of which call options accounted for 56%.

options active

Options orders indicate a more conservative institutional call strategy, with a preference for selling Apple puts

sell $AAPL 20231103 172.5 PUT$

sell $AAPL 20231201 160.0 PUT$

Top of the list was the purchase of forward put options

buy $AAPL 20240920 145.0 PUT$

Option strategy

The strategy with the highest win rate in the week before earnings is the bull put spread strategy:

• sell $AAPL 20231110 167.5 PUT$

• buy $AAPL 20231110 162.5 PUT$

According to the calculation of the Tiger app portfolio options computer, when the stock price is above $167.56 at the expiration of November 10, it can make a profit of $108, and the total margin of the strategy is only $500.