Apple earnings: options market is pricing in 4.2% move in either direction

Apple is due to report earnings on Thursday after the closing bell. The options market is currently pricing in a 4.2% move in either direction.

Gavin McMaster for Investor’s Business Daily:
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Here’s how to set up a bull put spread to profit if Apple stock follows its recent pattern of reactions.
With implied volatility high ahead of earnings, we can structure a credit spread to fit the view that:
1. AAPL stock will stay within the expected range.
2. The response to the earnings report is likely to be positive.
Now that we know the expected range [4.2% of the price for Apple stock], let’s find a bull put spread that has the short strike roughly seven points below the stock price. The closest strike that fits is at $162.50.
So if we sell a Nov. 3 put with a $162.50 strike and buy a $157.50 put at the same expiration, we create a bull put spread.

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MacDailyNews Note: As McMaster explains in his full article>/a>, 16% return in a few days would be nice, but the possibility of losing 100% is also very much on the table. This style of trade is only for traders with a high-risk tolerance; options are risky and investors can lose 100% of their investment. So, if you don’t know exactly what you’re doing and if you aren’t prepared to lose your entire investment, don’t do it.
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