Apple’s annual Worldwide Developer Conference (WWDC) is coming up soon (June 6) and obviously there’s a lot of interest in what the company will announce.Goldman’s options specialists Katherine Fogertey and John Marshall tell you how to trade it.
The basic idea is this: Current volatility is low, but it turns out that the Developer Meeting is actually a bigger deal for Apple stock than earnings typically is. The average move in the 5 days around the conference is +/-5.4%, whereas on earnings the typical move is +/-3%.
Thus Goldman is calling for a “straddle” bet, which is basically a bet that the stock will either move up or down a lot.
Specifically, the firm recommends paying $19.40 for the June $350 straddles.
The maths works like this: “If held to expiration, June $350 straddle buyers profit if shares close up 5.7% to $369.40 or down 5.4% to $330.60 on June expiration. Investors who hold straddles to expiry risk losing their entire premium paid.”
One more interesting fact about Apple’s stock. Despite its incredible surge, the stock trades at a paltry 11x 2012 earnings, vs. the average multiple of 22%.
As for what to expect, Goldman expects an emphasis on “cloud services.”