I’ve been attacking this one from another angle, trying to understand what the big institutions are doing. It seems to me that the key is TTM PE.
Look at the URL below. Prior to the 2008 crash, AAPL was trading with a 30 PE, spiking up into the 40s, and then went south with the rest of the market, falling to 12 or so. Since then, it has rapidly gone back to a tight range of approx 18 to 23 TTM PE. That is, take the PPS range between each earnings, and apply TTM PE and you’ll see that for the last 4 quarters this range has held.
Last earnings it climbed in a straight line for weeks before, only to sell off the next day. The PE range held. For the sake of argument, let’s say big funds are using the simple rule to load up every time the PE dips below say 19, hold until 22, and then start unloading at 23. Does this insight give us a “floor” below which the PPS won’t fall? I’ll let you do the maths, as you need to use your own estimate of EPS to calculate the new TTM PE the day after earnings. You can’t fight the big boys; far better to figure out what they’re doing and hitch a ride.
Hope this is useful to somebody.
http://ycharts.com/companies/AAPL/pe_ratio#stats=true&zoom=5&comp=price
soler 6:56 pm on January 14, 2011 491 days ago Reply
Hi Nolav,
Can I ask what your plan is to play earnings? I am holding some Apr 300 calls and am debating when to sell. I held some other options through the last earnings only to get burned and swore never to do it again. They were Jan’s so I did make money in the end.
This time, everyone is expecting record earnings (again) but I would rather sell before and pick them up again if there is a sell off. I just don’t know if aapl will sell off like usual. May sell half my calls before earnings to take profits. Since Monday is a trading holiday, I have to make a decision whether to sell some this afternoon or Tues.
Any thoughts / comments would be greatly appreciated.
TIA
nolavabo 12:33 am on January 15, 2011 491 days ago Reply
Well, just using back of the napkin calculations I get this.
Current TTM EPS is $15.15. Analysts consensus for EPS on Tuesday is $5.45, so let’s call it $6 for real. Looking up EPS for same Q last year I find it’s (from memory) $3.50ish. So come Tuesday 5pm, AAPL TTM EPS will readjust to $15.15 + $2.50, or $17.65.
$17.65 x 18 PE = $317.17
$17.65 x 22 PE = $388.30
So if my theory about TTM PE is correct, that should be the range that it should trade within for the next 3 months, until the next earnings.
Since you have Apr calls you can actually hang on until the inevitable run-up into the next earnings. So you need to weigh up whether you can tough out any short-term pullback in order to capture a higher PPS later.
I am holding Jan, Mar and Jul $330 calls. I will be cashing in my Jan calls before earnings. I had a sell order in today and it came within 8c of it. I will risk holding the Mar calls through earnings, but will sell them if they fall back to my cost price. And the July calls I am willing to hold all the way into next earnings regardless of any short term pullbacks, even if they turn red.
nolavabo 11:30 pm on January 18, 2011 487 days ago Reply
Now that fresh numbers are in, I get this.
Last year, $3.67. This year $6.43. Therefore TTM EPS now becomes $15.15 – $3.67 + $6.43 = $17.91.
Applying the 18-22 PE range, we get $322.38 to $394.02. There we are, guys, you now know the buy and sell points of the big funds (I hope).
Nicu 12:08 am on January 19, 2011 487 days ago Reply
a quick computation shows that 12m trailing (or TTM) P/E excluding cash is about 15.7, assume (only) 50% growth for the next months, it becomes 10.5 (this is forward P/E ex cash) so forward PEG ex cash is about .15 (taking the actual 12m Y/Y growth)
note that the EPS growth was 78% Y/Y this quarter