Apple (AAPL) announces earnings after the market closes this afternoon. The market makers are pricing the at the money straddle at about $12.50. Since Apple is trading around 152, that is allowing for an 8% move either way.
What has AAPL done recently when earnings are announced? Here is the move from the close before earnings to the open the next day.
| Earnings date | Close to Open |
| 4/22/2009 | 0.71% |
| 4/21/2009 | |
| 1/22/2009 | 6.29% |
| 1/21/2009 | |
| 10/22/2008 | 6.43% |
| 10/21/2008 | |
| 7/22/2008 | -10.40% |
| 7/21/2008 | |
| 4/24/2008 | 1.50% |
| 4/23/2008 | |
| 1/23/2008 | -12.50% |
| 1/22/2008 | |
| 10/23/2007 | 8.14% |
| 10/22/2007 | |
| 7/26/2007 | 6.30% |
| 7/25/2007 | |
| 4/26/2007 | 6.53% |
| 4/25/2007 | |
| 1/18/2007 | -3.00% |
| 1/17/2007 | |
| 10/19/2006 | 6.35% |
| 10/18/2006 | |
| 7/20/2006 | 12.68% |
| 7/19/2006 | |
| 4/20/2006 | 5.88% |
| 4/19/2006 | |
| 1/19/2006 | -1.50% |
| 1/18/2006 |
The average move is 2.39%, but there are a lot of large moves. There are three times when the close to open move is less than 1.5%, one -3%, six times around 6%, once an 8% move, once greater than 12%, and two moves down greater than 10%.
To try to center the returns around 140 and 165, we can try a dual calendar spread, selling the 140 Aug put and buying the 140 Sep put and selling the 165 Aug call and buying the 165 Sep call. Here is what the return looks like. The dark line is expiration, which we aren’t waiting for, so lets look at the blue and red lines.
If the August options’ implied volatility drops to the Sep values, this is what tomorrow’s return looks like:
So a big part of the return is the drop in volatility. Apple August options volatility should drop to the out month value once the uncertainty of the earnings are digested.
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