Nothing short of $40 billion dollars is on the line when Apple reports earnings tonight. That’s how much options prices are implying Apple stock will move following the release of its results.
That’s a staggering sum of cash - half the size of Disney , and more than the combined market caps of Sprint , Kroger , Sears, Best Buy and Darden Restaurants , five companies that collectively employ more than 1.3 million people.
So what does it all mean? Put simply: Fear is in the air.
And in my opinion, for good reason.
Results from Verizon and AT&T , two of the biggest iPhone carries, show that it’s gonna be hard for Apple to hit the consensus target of 33 million units for the quarter.
Also, with the latest iPad having come and gone, the next significant product cycle won’t be until the company releases the “newest” iPhone sometime in October.
With gas prices still high, Europe still a mess and an economic recovery stuck in second gear, investors may have to reconsider those lofty $1000 dollar price targets that analysts were pushing only weeks ago.
So what to do now?
I personally don’t think the stock is going to move as much as current options prices imply, and I detailed a lengthy trade on both my site (riskreversal.com) and on last week’s Options Action to profit from such a scenario. However, if you think the options market is right, and you think Apple is poised for a massive move, traders might want to look to longer dated call spreads or put spreads, depending on their directional bias. The shorter dated weekly options leave a very slim margin for error, even if you get the direction right.
DISCLOSURE:Dan Nathan is short Apple Weekly Call Spreads and Put Spreads.. and is Long Jan ’13 450 Puts.
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