Apple is set to report earnings after Monday's bell. And ahead of the tech giant's results, investors who believe in the long-term promise of the tech giant but are nervous about short-term moves on earnings might want to turn to the options market for protection.
"If you are long the stock, and you think there's a bunch of good news that's coming out [then] I would look to just buy some weekly puts," said Dan Nathan of RiskReversal.com.
A put grants its owner the right, but not the obligation, to sell a given stock at a given time and price. That means a weekly put position provides protection to the downside against a long holding of Apple shares.
Specifically, the weekly 96-strike put expiring on Oct. 24th could be purchased on Monday morning for slightly more than a dollar per share, meaning that it protects one's Apple shares below $95. So if, for instance, Apple shares are at $90 at the end of the week, a large percentage of losses on the shares themselves will be offset by the $5 gain on each put. If Apple shares close the week above $96, this "insurance" bet will expire worthless, and will reduce one's gains by the dollar spent.
Massive tech companies have not produced especially inspiring earnings reports lately. IBM's huge miss on Monday led the stock to open the week some 8 percent below where it closed on Friday. Google also disappointed investors with its third-quarter report, which missed on both the earnings and the revenue sides.
Looking at Apple, Nathan predicts that "the quarter's going to be in line" with expectations, but adds that "if the guidance is not strong, it could get sold like Google."
Analysts are looking for Apple to report earnings of $1.31 per share according to FactSet, versus the $1.18 the company reported in same quarter a year prior.