Apple has an event scheduled for next Monday March 9, and it appears this will be an introduction to the much talked-about wearable device. Some are saying it is a watch, but I would not be surprised if Apple calls it something more than a watch.
When there is a scheduled event, but the contents/outcome is uncertain, that tends to raise the level of anxiety. Will they bring what everyone expects? Will they miss the mark? Expectations are always high, and with that, someone always ends up being disappointed.
Throughout its history, Apple has rolled out the red carpet for its new products, designs, or service for consumers, developers and corporations. They are usually a rousing success, but there is always that little shred of doubt – what if it’s not good enough?
We see that doubt showing up in a rising volatility specific to Apple. Implied option prices tend to rise in front of the event, as anyone who wishes to be participate and own options on the news will be asked to pay up for it.
Once the event starts and then ends, the volatility implodes and we see wild, price movements. This is no different than during an earnings release, yet we for these events, we don’t often see a skew or bias leaning to one side or the other.
In evaluating a strategy, we have to look at history. The stock price has been on a roll since December, and that has been accompanied by increased price targets by research analysts, no doubt seeing the benefit of a new product hitting the shelves.
The most recent events in 2014 (twice in the fall) failed to inspire much follow-on buying of the stock, but there was a nice run up before the iPhone 6 event in September. In fact, we have rarely seen much movement upward for the first few weeks following an even; the stock often becomes stuck or drifts lower.
The best strategy here might be to sell the premium prior to the event and capture some of the juice already baked into the options. A potential trade idea might be to sell a wide strangle (sell an upside call and a downside put, but this requires margin, as risk is not defined) or selling a wide condor, a more conservative strategy as risk is defined. If the stock doesn’t move, you keep the premium.
In the end, Apple usually gets it right. It’ll be fun to see how they do with their new device, always a winner. I have more on these and other strategies on my website.
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