Apple’s Earnings Report Could Spark Volatility: Goldman Sachs Sees Opportunity for Options Traders
Goldman Sachs believes Apple’s upcoming earnings report could trigger significant market movement, presenting an opportunity for options traders. John Marshall, the firm’s head of derivatives research, stated in a note to clients that the tech giant’s earnings release, scheduled for August 1st after the closing bell, could deliver a positive surprise. The firm’s hardware analyst, Michael Ng, expects Apple (AAPL) to exceed earnings per share estimates, driven by robust growth projections for iPad/Mac and Services. He anticipates investors will focus intently on iPhone demand, AI investments, and company valuations.
Key Takeaways:
- Goldman Sachs predicts Apple’s earnings report could yield a positive surprise. This anticipation stems from strong growth forecasts for iPad/Mac and Services.
- The market anticipates considerable stock movement surrounding the report. Apple’s two-week implied volatility stands at 31, placing it in the 93rd percentile compared to the past year.
- Options investors are bullishly positioned. Goldman suggests $225 strike price straddles expiring August 9th as a strategy to capitalize on earnings-related volatility.
- A straddle utilizes both a call and put option, enabling investors to profit from increased volatility regardless of stock direction.
However, it is crucial to note that the Goldman note was published before Wednesday’s tech sell-off, which saw Apple shares plummet by 2.9%. This recent downturn might necessitate re-evaluating other strike prices and considering potential losses capped at the upfront cost of the options contract.
Apple’s Strong Year-to-Date Performance
Apple has had a positive year so far, with shares climbing over 13% year-to-date. This upward trend gained momentum in June following the introduction of new artificial intelligence features at Apple’s developer conference.
Understanding Straddles
A straddle is a popular options trading strategy that involves simultaneously purchasing a call and a put option on the same underlying asset, with the same strike price and expiration date. This strategy aims to capitalize on volatility by profiting from significant price fluctuations, regardless of whether the underlying asset increases or decreases in value.
The payoff for a straddle is maximized when the underlying asset’s price moves significantly in either direction. However, it is important to remember that straddles are expensive compared to individual call or put options with similar parameters. Therefore, it is crucial to factor in the upfront cost when determining the potential profitability of this strategy.
Volatility and Earnings Reports
Earnings reports are often associated with increased stock price volatility. This is because investors react to the reported financial data, potentially causing significant price swings. Options traders often utilize strategies like straddles to profit from these price fluctuations.
The effectiveness of a straddle depends on the volatility of the underlying asset. If the asset remains relatively stable, the cost of the options may outweigh any potential gains. However, if the underlying asset experiences significant price swings, a straddle can be a profitable strategy.
Navigating the Market with Caution
While Goldman Sachs believes Apple’s upcoming earnings report could present a favorable opportunity for options traders, it is crucial to approach such investment decisions with caution. Market volatility can be unpredictable, and options trading carries inherent risks. Investors are advised to carefully consider their risk tolerance, thoroughly understand the intricacies of straddles, and conduct in-depth research before making any investment decisions.
It’s important to remember that this article is for informational purposes only and does not constitute financial advice. Investing involves risk, and you should always consult with a qualified financial professional before making any investment decisions.
