In minutes from now, Apple will release quarterly earnings. In what could be a preview of what's to come, AT&T reported results that topped expectations. The telecom giant added 1.2 million net new subscribers, with the company getting a heavy assist from Apple in the form of 1.6 million new iPhone accounts.
So what does this mean for Apple?
"Apple was probably pleased with AT&T's iPhone sales in the U.S. But you can't extrapolate too much into that," said Andy Hargreaves of Pacific Crest Securities (Outperform). Hargreaves pointed instead to what he believes will be better than expected gross margins, as prices for the Jesus phone continues to hold up.
The options market is pricing in a 6.5% move for earnings, which would be slightly above the 5% average move for the stock the last four quarters. As Dan Nathan of "Options Action" fame (and of Phoenix Partners Group) noted, in the past 12 quarters, there have only been two moves of 10%.
Having said that, prices for Apple options remain inflated due to a number of risks associated with the company outside of earnings. "With Apple, you have questions about both new products, and of course, the return of Steve Jobs," said Nathan.
With the stock up 43% year-to-date, caution might be in order. On Friday's show, Nathan recommended selling the Apple May 135 Call to finance the purchase of the Apple May 110 Put, for a net cost of zero. The strategy was designed as a risk management trade for those who are only long the stock. Still, the trade illustrates the power of options as it both provides for some upside and protects the downside for near next to nothing.
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