The Single Best Way To Trade Apple's Upcoming Earnings

Apple’s (AAPL) earnings are scheduled for a week from today, on October 31 after the market closes. This presents an opportunity to swing for the fences with a cheap long strangle – that is, a long call and a long put that will deliver outsized returns if and only if traders push AAPL's prices hard in one direction or another.

Here's how to place the trade.

A trade with a long call and a long put at different strikes but with the same expiration date is called a "strangle."

Enter the long call and the long put, the two "legs" of the strangle, at the same time. But you can exit them individually without margin being necessary. In this case, however, the strangle will either hit lights out or quickly erode to zero.

With that in mind, consider this a small-sized position and enjoy any returns as a cushion for the portfolio you may be building over time.

With all that said, here's the long strangle:

• Buy to open 1 AAPL 1 Nov 250 calls
• Buy to open 1 AAPL 1 Nov 212.5 puts

If the lack of time in the options troubles you, you could take these strikes with a November 8 or 15 expiration date, but it would significantly increase the cost of the strangle. That, in turn, means the move you must see to make a profit has to be bigger, too.

The long strangle will cost 0.63 at this writing and this will be the total cost and the total exposure in the trade. The breakeven for this trade means that the price of AAPL stock will need to be above $250.63 or below $211.87.

The relative resistance zone for AAPL sits right around $250 and the relative support is near $200.

This strategy results in only two choices to exit the trade:

1. Sell the entire strangle once your strikes are hit. This could be anywhere from 70-100% though if the chart really expands, the upside to profit is unlimited (theoretically).
2. Sell the entire strangle once your threshold for loss is hit. Mine is typically 55%. This second one will be difficult if the traders do nothing with prices post earnings.

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