Capitalizing on IV Shifts: Pre-Earnings Options Positioning for Amazon and Apple

ImSteven joined discussion · Oct 30 03:51

Some investors focus excessively on stock price movements during the earnings season, while overlooking the expansion and contraction of Implied Volatility (IV)—which often provides more critical information and trading opportunities than price changes themselves. This article analyzes the shifts in the pre-earnings implied volatility market for $Apple (AAPL.US)$ and $Amazon (AMZN.US)$ , along with their corresponding options trading opportunities.

Amazon

Since its cloud computing revenue fell short of expectations last quarter, Amazon's upward trend has been hindered, leading to three consecutive months of volatile trading. This fluctuating price action has caused the stock's implied volatility (IV) to rise unusually high, currently at the 88th percentile of its historical range—an extremely high level for Amazon. This presents a rare opportunity for investors to act as option sellers—it's important to note that Amazon's IV isn't always this elevated.

Looking at the option chain data, we can see that even for expiration dates in February, March, and April of next year, Amazon's IV remains around 40.

For near-term expirations, the IV has been pushed to 50–60 due to the intense pre-earnings trading atmosphere.

Therefore, given Amazon's rare high IV environment and its relatively low stock price (Amazon is the only one among the Magnificent 7 stocks that hasn't hit a new high this year), selling puts betting that the stock price will struggle to continue falling or decline significantly becomes a logical strategy.

For example, one could consider selling the put option expiring in April next year with a strike price of 190.

This option currently has an IV of 36, and its vega—the Greek measuring the impact of IV changes on the option's price—is 0.39. This means for every 1-point increase or decrease in IV, the option's price moves in the same direction by $0.39.

Therefore, if we assume that after earnings, Amazon's IV drops to 33 (a decrease of 3 points) while the stock price remains unchanged, the price of this option would decrease by $1.20. Currently priced at $5.30, a $1.20 drop represents a considerable gain for the seller (short side). If the stock price rises after earnings, the option's price would decay even faster.

Apple

After the strong sales of the iPhone 17 in September, Apple's stock price began to rise, recently slightly surpassing a $4 trillion market capitalization. However, compared to other Magnificent 7 stocks, its gains this year are still relatively modest—in other words, Apple has merely recovered the losses it experienced from last December to April of this year.

Thus, similar to Amazon's current situation, Apple's downside appears limited while its upside potential is significant. This creates a natural opportunity for the short put strategy. However, we must acknowledge that Apple's IV is simply too low—not only in absolute terms but also in its relative standing, at only the 49th historical percentile.

Such low IV means the premium collected from selling puts is small. If one insists on collecting more premium, they would need to choose strike prices closer to the current stock price, which increases the risk of the option expiring in-the-money and the seller being assigned the stock. Of course, assignment might be a risk for other stocks, but for Apple, which is potentially on the verge of a new product cycle, the risk isn't as high. That is to say, even if assigned, Apple stock is still considered a worthwhile holding.

Therefore, investors might consider selling puts with 3 or 4 months to expiration and strike prices between 230 and 240. The premium received as a percentage of the strike price is approximately 1.1%.

Additionally, long options strategies have always been a consideration for Apple. If investors bet the stock price will rise after earnings, they can establish positions using long calls; conversely, they can use long puts. Given the current earnings season volatility, the option term should be slightly extended, ideally 1 to 2 months to expiration. This provides sufficient buffer room even if the stock price experiences fluctuations post-earnings. Regarding strike price selection, at-the-money or slightly out-of-the-money options are viable.