Apple Trading Strategy over Earnings

April 28, 2021 at 4:04 am Leave a comment

Summary: By the example of AAPL, we demonstrate how to follow a risk-limiting strategy to trade stocks over earnings.

There are multiple ways to decide for a trade:

  • Fundamental
  • Technical
  • News Based

Whatever you use as determining variable, news can change the demand for a share drastically; hence, we need to consider news in our trading.

Trading Fundamental, Technical, News based

Buy the Rumor, Sell the News, is a simple saying, but what do we do with it as a trader or investor?  

Apple inc. is reporting first-quarter earnings today, April 28, 2021, after the stock market close. It is always exciting to hear what Apple has to say; however, today, we will experience a leading impact on the stock markets overall. The focal point of attention will be the introduction of the new generation of 5G capable phones. By 2025, 5G networks are likely to cover one-third of the world’s population and trigger a demand for at least 1.2 billion new phones. The impact on the mobile industry and its customers will be profound. 5G is more than a new generation of technologies; it denotes a new era in which connectivity will become increasingly fluid and flexible. Compare it to going from dial-up internet to broadband or high-speed internet: a significant change in capabilities.

AAPL stopped reporting units of iPhones sold in 2018. The iPhone segment accounts for about 50% of Apple’s revenue. We still were able to get some insights and into the market shares of units sold of the key players:

AAPL: 21 % market share, Samsung 16%, Xiaomi 11%, Oppo 9%, Huawei 9% and a wide variety of others covering the rest.

With the roll-out of 5G, communication companies, smartphone producers, and chip manufacturers are looking for profitable growth in the years to come.

All of this sounds just positive, but we still let the chart tell when to buy or sell:

AAPL Weekly Top-Line Chart, Nov. 2020 to April 2021

AAPL on the Weekly NLT Top-Line Chart

Chart Analysis:

Situation-1: After a time of ambiguity (NLT Purple Zone), where the price direction was uncertain, we had an end of purple zone signal with a buy-threshold > $134.40. The buy-stop order was filled in the price development of the next candle (week of 12/28/2020) and carried out to the target (dot on the chart), not considering further confirming signals. When the target price was reached, the share price pulled back, but we were out of the trade!

Situation-2: The NLT Top-Line signal of the week of 4/5/2021: Buy > $133.04 was confirmed in the price development of the week 4/12/2021, and such, we are long in AAPL with two potential targets: $139.89 (Target-1 to be reached on 1-5 candles) and $146.78 (Target-2 to be reached in max ten candles).

Trading over earnings has an uncontrollable risk; hence, we chose a limited-risk strategy, where we know at entry the max loss of the trade, regardless of the price development of AAPL. Most importantly, we will participate in potential upside opportunities and keep the ability to repair the trade if it goes wrong (the concept of never stop loss trading gave us our name, but we shortened it a little)

With the NLT concept, we simplify life for you and let the chart tell when to buy or sell, specifying all decision-making dimensions at once:

  • Entry Conditions: Execute buy-stop or sell-stop orders at pre-defined price thresholds at assumed probability
  • Exit Condition: When is the target reached
  • Stop Condition: By not controlling the stop in the AAPL trade over earnings, we work without a stop but with a risk-limiting options trading strategy.
  • Risk Management: Operating with limited-risk strategies only, we prevent drawdowns.

When you are familiar with options trading, you know that Vega, the volatility component in the options price, accelerates the cost of the option over news events like earnings. To not pay too much for the time we want to control the stock; we cover the potential time decay by combining risk-limiting options strategies on the stock options put- and call side: collecting premium and paying premium.

If trading was easy, nobody would ever go back to work. The good news: it is learnable.

The NLT trading concept over earnings announcement is only one strategy of many; we teach in the hours of working together.  Here a short overview of what you will all experience by operating with rule-based trading decisions as a day trader, swing trader or long-term investor in margin-, IRA, and even 401(k) accounts.

NLT Learning Program Overview

Let us be your guide to a consistent trader and investor and schedule a free consulting session, where you can see live what our systems can do for you: Subj: Consulting Hour

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Entry filed under: Algorithmic Trading, never loss trading, Stock Trading, Technical Analysis, Trade Preparation, Trade Repair, Trading Chart, trading system.

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