Well here we go, Apple earnings on Tuesday. How am I going to play it? From the sidelines. Why? Because for me the money is in the run up to earnings due to earnings expectations which ended abruptly last week. I do not hold through earnings, for me it is like betting on black or red on the roulette wheel, I feel that you only have a 50/50 chance to be right on the post earnings direction. Even if the earnings blow out, the stock can still amazingly go down because everyone already bought into the run up and now they are selling to take profits, great earnings are many times priced in, it takes a surprise to really lift the stock even further. We have been in a profit taking, risk off frenzy now on Apple for the past seven trading days. Apple did find support at the 50 day moving average, I would be in at this level if it was not for earnings on Tuesday.
Apple options are pricing in a $30 move by Friday and a $40 move in the next month based on the cost of at the money options. This is actually pretty cheap, this is really due to all the uncertainty in the price movement. If any line misses on earnings or sales, then after earnings we could see Apple fall all the way back to the 200 day moving average and even fill the gap at $425. This could happen if the whole market goes into correction mode with European debt defaults back in question.
Or we could see an earnings report that is epic and crushes all estimates. This could bring all sellers rushing back in as buyers and Apple stock could get back up to $644 and beyond very quickly.
The question is do you bet on red or black? This is not investing or trading this is gambling in my book. I would prefer to not risk the losses and simply start trading it after earnings. I would be much more comfortable buying back in at $644 on a break out to all time highs or at the 50 day or 200 day moving average than risking being on the wrong side of a 30 or 40 point move against me.
Sorry, to me the choice is red, black, or risk management, I choose risk off. I am a risk sissy, and that is why I win.