An analysis of options trading in Apple (AAPL) shows that traders are expecting a move of about $31 in shares of Apple post earnings. As usual, bullish option players out number bearish option players, but to a lesser extent than in previous quarters just before earnings.
In my analysis, a move over $50 isn’t out of the question. The reason is that there is an unusually high variance between analysts’ estimates for the last quarter as well as for the current quarter.
One of my favorite Apple indicators is my Apple email indicator, and I get a large number of emails related to Apple. This indicator simply measures the sentiment among those who write me.
I am alarmed at the number of emails from investors who are selling naked puts or naked calls. This indicates that a large number of players are so sure of the direction of the move after the earnings that they are willing to take a huge risk for a small reward.
The number of those selling naked puts is running only slightly above those selling naked calls. Those selling naked puts believe that the stock will go up post earnings and those selling naked calls believe the stock will go down post earnings. With the exception of a scenario where the stock remains mostly unchanged after earnings, both groups cannot be right.
This is setting up a situation in which a move in either direction may become artificially larger as those naked option sellers who are wrong panic.
With the advanced knowledge that any big post earnings move is likely to be artificially and temporarily exaggerated, astute short-term traders may want to be prepared to take the opposite side at extremes….Read more at MarketWatch
