Even though Apple is THE monster stock of the last 10 years and I love the fundamentals and I love the company story, I still have a rule in my trading plan: I do not hold through earnings. Why? I could catch a $40 pop after the announcement? I could also catch a pop and drop of $40 in one day or a $100 drop like the hold and hopers caught last earnings over the next week. Even without holding through earnings in 2012 I have still caught over $150 in price movement through the use of call options and the 5 day exponential average as my short term guide and the 50 day as my line in the sand. I also limited any major draw downs by getting out when the trend reversed and caught more of the movement by doubling up my position at high probability moments.
I am not an Apple investor I am a trend trader looking for the fast gains. Instead of holding Apple stock during corrections I was short Price line as it fell and short facebook as soon as put options were available.
My current Apple earnings trading plan:
- I will make no trades until after the earnings announcement.
- If Apple price rises over $620 after earnings and closes near the high of the day I will look to enter on the long side on the next day.
- If I do take a long position after earnings I will initially use the low of the day after earnings as my end of day stop and my Darvas Box support level.
- If Apple falls after earnings and does not recover I will use a close below the 50 day simple moving average as my level to short it.
- I will key my trades off the 5 day ema and 50 day sma if a trend develops.
- I will not be trading 100 shares of stock for $60,000 instead I will be using in the money call options and put options as needed for likely only about $1500 $1800 in capital to control the $60,000 in stock movement. I will be going about $15 in the money to eliminate most of the cost of theta and capture the full movement of the underlying 100 shares.
- I am not going to predict anything I am going to do what the chart tells me through its price action.
REMEMBER the price movement after earnings is not based off the fundamentals reported, it is all based on the reactions of the investors and traders AFTER they hear the numbers. Either directional move can happen, growth stock are very sensitive to meeting and exceeding growth expectations.
But, everyone has to trade their own plan.
