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Strategies for Trading AAPL During Market Reactions to Steve Jobs' Medical Leave Announcement

On January 17, AAPL announced that Steve Jobs is taking another indefinite medical leave, causing shares to dip significantly before recovering. With AAPL set to report Q1 results the following day, analysts remain optimistic about strong performance despite previous supply constraints. This article explores various trading strategies including buying stock at the open, utilizing options like call spreads, and selling puts. We analyze potential scenarios, profits, and losses, helping traders navigate the market's volatility following the news.

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Strategies for Trading AAPL During Market Reactions to Steve Jobs' Medical Leave Announcement

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  1. Exploiting Events using Options

  2. AAPL • AAPL announces on 1/17 (MLK market holiday) that its iconic leader Steve Jobs is taking another medical leave of absence (indefinite this time). AAPL shares in Frankfurt drop as much as 8% before recovering to a 6% drop (~$348 to $327) • AAPL is slated to announce its Q1 /11 results after market on the following day (1/18). You know the following: • Their previous quarter was lighter then expected in iPad’s because of supply constraints • Amazon reported that iPhone and iPad were 2 of their 3 top selling products during the holidays • Overwhelmingly – analysts expect AAPL to overachieve in this, their strongest quarter

  3. How do you play this • Buy stock at open • Sell stock short at open • Buy – write (buy stock, sell higher call) • Buy bullish call spread at the open • Sell put at the open • Buy stock before close • Buy vertical bull spread before close • Buy put before close

  4. Possible actions – Buy Stock • Buy stock at open – 100 shares @ $326-$334, stock climbs by end of day to $340, peaking at $345. After hours, when company blows past expectations stock hits $357 before falling back to $345; Following day is a negative market day stock wavers between $337 - $348, closing at $338+ • $~33,000 investment; profit of between $800 (2.5%) and $2,700 (~8%)

  5. Possible actions – Short Stock • Lose $800 - $2,700

  6. Possible actions – Buy write • Buy stock at open – 100 shares @ $326-$334,Sell 1contract of Jan $345 (@ $1.5-$2.0 per contract or $150-$200 in proceeds) stock climbs by end of day to $340, peaking at $345. After hours, when company blows past expectations stock hits $357 before falling back to $345; Following day is a negative market day stock wavers between $337 - $348, closing at $338+ • $~32,800 investment; profit of between $1,000 (3.1%) and $1,700 (~5.5%)

  7. Possible actions – Bull spread @ open • Buy 70 contracts of Jan $330/$340 C spread @ ~$4.50 ($3.70-$5.00). stock climbs by end of day to $340, peaking at $345. After hours, when company blows past expectations stock hits $357 before falling back to $345; Following day is a negative market day stock wavers between $337 - $348, closing at $338+ • Contract peaks $7.00 on 1/18, no afterhours contarct trading , reached $8.50 on 1/19 • $~31,500 investment; profit of between $17,500 (~55%) and $28,000 (~89%)

  8. Possible actions – Sell PUT at Open • Sell Jan $330P at open – 2 contracts @ ~$8/per, stock climbs by end of day to $340, peaking at $345. After hours, when company blows past expectations stock hits $357 before falling back to $345; Following day is a negative market day stock wavers between $337 - $348, closing at $338+ • $~13,200 collateral, no real investment; profit of $1,600 (>12%) if you let it expire

  9. Possible actions – Action Before Close • Buy stock at close – advantage: you are more certain the stock is recovering from the Job news – 100 shares @ ~$340. After hours, when company blows past expectations stock hits $357 before falling back to $345; Following day is a negative market day stock wavers between $337 - $348, closing at $338+ • $~34,000 investment; profit of between $800 (~2.5%) and $1,700 (~5%)

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