Mad Money

Cramer Trades Apple Ahead of Earnings

Cramer's Game Plan for Apple

On Monday, Cramer looked at how to trade Apple ahead of earnings. The technology company is scheduled to report after Tuesday’s closing bell.

In doing so, the “Mad Money” host considered some technical indicators. Apple’s stock posted a huge gain of 15 percent going into the quarter. According to Mark Sebastian, a highly regarded technician on Wall Street, Apple’s stock has gotten hammered when it’s had a such a huge move ahead of the quarter. In both 2010 and 2011, Sebastian found that if Apple didn’t sell off right after earnings, it retreated to below where it was trading before the quarter.

Sebastian thinks investors should sell Apple shares before it reports after the market’s close, even if there’s a new product introduction because Apple has a history of selling off on new product introductions, too. He suggests investors buy Apple call optionsto limit downside risk while maximizing upside potential. Call options sell at a premium to the common stock, though, so it can be costly.

Given Sebastian’s chart work, Cramer thinks Apple’s stock is likely to sell off on Tuesday. He suggests selling Apple into the quarter.

“I'm never going to tell you not to take a profit in a stock that's up big.  One of my cardinal tenets is never turn a profit into a loss and everyone who owns Apple has a profit in it.  Everyone.  This is the all-time high of all-time highs,” Cramer explained. “My worry, though, is will you be able to get back in?  Can I get you back in?”

Institutional traders who can be nimble should heed Sebastian’s work and either play Apple with calls or take some profits knowing they might have to buy back what they sold in a few days, Cramer said. The big risk for everyone else who sells Apple shares is that the company “truly blows out the quarter” and the stock doesn’t come in. If anything, though, he thinks investors should sell something, so that they have the money to buy more Apple shares in case Sebastian is right and we see a pullback.

When this story was published, Cramer’s charitable trust owned Apple.

Call Cramer: 1-800-743-CNBC

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