Apple, DraftKings, Arista Headline Busy Earnings Calendar

It’s been a pretty good start to first-quarter earnings season despite liquidity concerns in the financial sector. After bullish earnings reports from Microsoft (MSFT) and Facebook parent Meta Platforms (META), attention turns to Apple (AAPL), which reports Thursday after the close. AAPL stock continues to perform well, with a relative strength line near highs.

Thursday’s bullish session was fueled by a strong report from META. But several leading growth stocks off hard on earnings, including Impinj (PI), Mobileye (MBLY) and Crocs (CROX). Sellers on Friday also hit fast-growing stocks like Cloudflare (NET) and First Solar (FSLR).

Several top-performing stocks are on the earnings calendar in the coming week, including DraftKings (DKNG), Inspire Medical (INSP) and Arista Networks (ANET).

DKNG stock and Inspire Medical continue to show relative strength. Arista Networks has been consolidating for five weeks as it tests support at the 10-week moving average.

DraftKings reports late Thursday. Results from INSP, which is near the top of a cup base, are due Tuesday after the close.

Inspire provides a minimally invasive solution to treat obstructive sleep apnea. Instead of clunky headgear, the Inspire system delivers mild stimulation to the hypoglossal nerve, which controls the movement of the tongue and other key airway muscles. Group peer ResMed (RMD), another sleep apnea specialist, soared Friday on strong earnings.

AAPL Stock Attracts Buyers

AAPL stock gapped above its 200-day moving average on Feb. 2, despite news that quarterly profit in the holiday quarter fell 10% to $1.88 a share. Revenue eased 5% to $117.2 billion, marking the first year-over-year revenue decline since 2019. IPhone  revenue slipped 8% to $65.78 billion.

Mac revenue plunged 29% to $7.74 billion, but iPad revenue jumped 30% to $9.4 billion. Services revenue also did well, up 6% to $20.77 billion. The company cited strength in cloud services, payments including Apple Pay and Apple Card, and music.

Gross margin improved slightly to 42.96%.

For the current quarter, the Zacks consensus estimate is for adjusted profit of $1.44 a share, down 5%. Revenue is expected to decline again, down 4% to $93.3 billion.

Leaderboard Earnings

MercadoLibre (MELI), an e-commerce giant in Latin America, reports Wednesday after the close. The company boasts strong earnings and revenue growth in recent quarters, along with big annual earnings estimates.

MELI has about 148 million active users. Besides providing an e-commerce marketplace for buyers and sellers, the company hosts platforms where users can create online stores. Its financial arm — Mercado Pago — is a peer-to-peer and consumer-to-business network that processed $36 billion in payments in Q4.

In the retail sector, Floor & Decor (FND) is expected to report an 8% rise in revenue to $1.11 billion. Earnings are due late Thursday.

Meanwhile, stocks in the building sector have been on fire as the stock market holds out hope for a soft landing for the U.S. economy.

Early Thursday, TopBuild (BLD) and Installed Building Products (IBP) will be out with results. Both firms are providers of insulation installation services.

BLD just bounced off its 10-day moving average and is still in buy range from a 216.34 entry. IBP is in an almost identical chart setup.

Options Trading Strategy

A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the options trading strategy works and what a call option trade recently looked like for AAPL stock.

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First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might have already broken out and are getting support at their 10-week lines for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.

In options trading, a call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.

Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price. A put option gives the holder the right to sell 100 shares of a stock at a specified price.

You earn profits when the stock falls below the strike price with a put option.

Check Strike Prices

Once you’ve identified an earnings setup for a call option, check strike prices with your online trading platform, or at Cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask.

Look for a strike price just above the underlying stock price (out of the money) and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.

Choose an expiration date that fits your risk objective but keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.

See Which Stocks Are In The Leaderboard Portfolio

This options trading strategy lets you capitalize on a bullish earnings report without taking too much risk. Risk is equal to the cost of the option. If the stock gaps down on earnings, the most you can lose is the amount paid for the contract.

AAPL Stock Option Trade

Here’s how a recent call option trade looked for Apple.

When AAPL stock traded around 168.25, a slightly in-the-money weekly call option with a 167.50 strike price (May 12 expiration) came with a premium of around $4.70 per contract, or 2.8% of the underlying stock price at the time.

One contract gave the holder the right to buy 100 shares of AAPL stock at 167.50 per share. The most that could be lost was $470 — the amount paid for the 100-share contract.

When taking the premium paid into account, AAPL stock would have to rally past 172.20 for the trade to start making money (167.50 strike price plus $4.70 premium per contract).

A call-option trade for Arista Networks wasn’t overly pricey either. When shares traded around 157.30, a slightly out-of-the-money call option with a 157.50 strike price (May 5 expiration) offered a premium of around $5.90 per contract, or 3.7% of the stock price.

Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.

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