Have you ever seen a stock drop 20-30% even after reporting incredible earnings?

by houltmac

I’m interested in selling a covered put on Apple. I really expect their share price to stay the same or increase slightly in value by their next earnings report in October.

As much as I’m confident in Apple’s success, could the strangest of circumstances drive Apple’s stock down 20 to 30% even though the company’s doing well?

If the stock drops 23% or more from its current price, my spread loses its full value.

Thanks for your help!
My spread provides a risk/return ratio of almost exactly 1:5 (i.e., risk $ 5,000 to make $ 1,000 etc.)

Answer by kate
They dropped about 20% in late July .

http://finance.yahoo.com/q/bc?s=AAPL&t=3m

Buying should be for a longer term ( like over a year )
Most any stock can drop , but the nature of the market is like a roller coaster .

If that ride makes you nervous ,
Then you sould consider CDs or bonds .

>

Answer by susie
Keep in mind that there are lots of reasons for a stock price to drop…yes, even with great earnings. And you are playing in the “tech” sector, where “never say never” is a given. Just map out your “worst case scenario”..is it something you could deal with? If not, don’t do it. There is not an easy answer (though I am sure many will try) but it really comes down to your personal aversion to risk.

Answer by zman492
<<>>

Yes, when the earnings announcement also contained bad news which would have an impact on future earnings.

<<>>

A “covered put” is usually considered to be a short put and a corresponding short stock position. I suspect you mean a put credit vertical spread, also called a bullish put vertical spread.

<<>>

It is possible but not likely. Consider this: Do you think someone would pay money to buy the spread if he did not think he had a chance of making a profit on it? Remember you will not be able able to sell the spread unless someone else is willing to buy it.

Answer by A5150Ylee
I have seen several stocks drop on good earnings. The problem arises from while the company reports say a 10% increase in earnings ( which is good ) but the stock price had already built in 15% gain.

Look at what AAPL expects to announce, then look at what investors expect. If AAPL is expecting less than investors, then it could gap down.

20 – 30 % on a single day is a lot, but stranger things have happened. You need to look at your risk / reward ratio. If you are risking $ 10,000 to make $ 500, then maybe it’s not worth it. Risking $ 10,000 to make $ 2,000 maybe it is….

Give your answer to this question below!

Levi F. Johnson2


Image by jajacks62
Co. H, 78th OH. Infantry
From A Standard History of Kansas and Kansans, written and compiled by William E. Connelley, Secretary of the Kansas State Historical Society, Topeka. Chicago: Lewis Publishing Company, copyright 1918

LEVI F. JOHNSON. As it was only about sixty years ago that the first permanent settlements were made in Kansas, there are a number of the real pioneers still alive, men who can recount their experiences when the plains were covered with buffaloes, when Indians made camp along the creeks, when the prairie fires raged across the high grass, and when the woods were filled with game, the creeks with fish, and when everything was new and primitive.

Now living retired at a comfortable home in Winfield Levi F. Johnson had his share in the early making of Kansas, particularly of Cowley County. He made his first trip to Kansas in 1860 when he bought eighty acres of wild land near Frankfort, Marshall County. The unsettled conditions of the frontier made a permanent residence at that time undesirable, and it was not until after the war in which he fought bravely and gallantly as a Union soldier that he returned to Kansas, then a state, and entered upon his real work as a builder and homemaker. Mr. Johnson recalls many trips which he made years ago with parties to hunt buffalo, which could be still found in large herds. He had many exciting experiences on such expeditions, and he is one of the comparatively few men who can recall the actual taste of buffalo steak and the methods of hunting an animal which is now all but extinct.

Levi F. Johnson was born in Harrison County, Ohio, October 28, 1837, and has lived almost fourscore years. His parents were Aaron and Hannah (Feaster) Johnson. His father was born in Harrison County, Ohio, and died at Marion, Kansas, at the age of sixty-three. The mother’s parents were Pennsylvania Dutch people. Levi F. Johnson was one of five children, the others being Rhoda, Daniel, Samuel and Mary. Of these Samuel and Levi are the only survivors. All the sons served in the Civil war. Daniel was killed at the battle of Chickamauga while fighting with the Fifty-first Ohio. Samuel was a member of the Forty-first Ohio Regiment.

Reared and educated in his native county, Levi F. Johnson after his first trip to Kansas and his return to his native state, was aroused by the news of the disaster at Bull Run, and hastened to enlist to defend the Union. He became a member of the Seventy-eighth Ohio Volunteer Infantry, and his early service was under General Grant. He participated in the capture of Fort Donelson, in the battle of Shiloh, at Corinth, and was in many of those battles leading up to the siege and capture of Vicksburg. He fought at Jackson, Champion Hill, and spent many days in the slow and steady approach to the Mississippi stronghold. Mr. Johnson says that during the siege of Vicksburg and contrary to the orders of the officers he and his Union comrades frequently visited with the rebels and traded tobacco and other supplies, and however bitterly they fought when time for battle arrived they were friends during the lulls of fighting. About the time Vicksburg fell Mr. Johnson was detailed to service in the Freedman’s Bureau. He was placed in charge of a camp of refugee negroes at the Joe Davis plantation twenty-eight miles below Vicksburg. There efforts were made to render the negroes self-supporting. They were trained to grow cotton, and Mr. Johnson had the task of allotting lands, maintaining a general supervision over the former slaves, and distributing rations and mules supplied by the bureau. While in that work he received a discharge from the army, but was kept in his position until after the close of the war. During part of the time he had the management of about 2,000 negroes.

For three years after the war he remained in the South and was engaged in cotton growing. In a short time the price of cotton fell so that the growing of the staple became unprofitable, and after realizing only a few hundred dollars from his venture he returned to Kansas in 1868.

The next three years he spent on his eighty acres of land in Marshall County. Selling that to advantage in the spring of 1871 he sought what was reported as government land on the Osage Indian strip in what is now Cowley County. He paid the regular government price of .25 per acre and received his deed from President Grant. His purchase was in Beaver Township, west of the Arkansas River and six miles south and six miles west of Winfield. It was mostly bottom lands. Mr. Johnson had driven a span of horses and at once set to work to break up the ground, which he planted in corn. After the planting was made his crop received no further cultivation, but such was the fertility of the soil and the excellence of the season that the land produced one of the best crops of corn he ever saw. It also proved wonderfully productive of melons, potatoes and other crops. For his first dwelling there Mr. Johnson had a log cabin with a dirt floor.

In the meantime on June 12, 1870, in Marshall County he married Miss Dora Biggs, who was then a young lady of nineteen. She entered heartily into the pioneer spirit of living and helping, and a great share of the credit for the success which he has accomplished is due to this sensible and practical woman, who was not only a wife and mother but also a partner and sharer in all his undertakings.

Not far from their pioneer home was a little saw mill owned by a neighbor, and that produced the lumber needed for building purposes. Along the river grew many large trees, principally cottonwood and walnut, and the logs from these were worked up into the lumber which went into the early buildings in that section of Cowley County. In 1873 a larger mill was started and that mill sawed the timbers for the residence which Mr. Johnson still has on his farm. He also showed foresight and was not content merely with the crops raised from the virgin soil. He set out fifteen acres to fruit, and in a few years had an abundance of plums and apples not only for his own use and to supply his neighbors but also for the general market. He frequently sold as high as 0 worth of apples.

Besides general farming Mr. Johnson gave his attention to stock raising and by working on this diversified plan he got ahead rapidly and was able to buy other land when values were low. At the present time his ownership extends to 1,500 acres in that vicinity. Besides the old homestead he has 640 acres in a body five miles southeast of Winfield. He paid less than an acre for that section of land and some of his land was bought at an acre. He has also bought some valuable pieces of centrally located business property in Winfield, and that has proved a wise investment and insures a permanent income. Mr. Johnson is a director in the First National Bank of Winfield.

While he has always voted the republican ticket he has never been an office seeker. His public spirited efforts have been directed in a practical fashion to the improvement of his home locality. A number of years ago a bridge was badly needed over the Arkansas River. Appropriations for that purpose had twice been voted down, and he then personally assumed the risk and let the contract on his own responsibility for ,800. The law then permitted commissioners to make appropriations in such cases if they saw fit, and in this instance he was reimbursed to the extent of ,000. He also contracted for and built the first schoolhouse in District No. 61. This schoolhouse became the center of all neighborhood religious and social gatherings, a church and Sunday school having been started in a year or two after the house was put up. Mrs. Johnson was largely instrumental in these movements, and was one of the first Sunday school teachers in this neighborhood.

In November, 1910, Mr. and Mrs. Johnson removed to Winfield, the operation of the old homestead having been turned over to their son Robert C. The other children are: Minnie, wife of the Winfield hardware merchant, Thomas Backus; Eva, widow of Ed Sidel, living with her parents; and Rhoda, who has proven herself a very capable assistant to her father in general oversight of his extensive interests. Mr. Johnson is an active member of the local post of the Grand Army of the Republic.

I don’t really understand bull markets….why would stock prices go up (or down) in companies like Proctor & Gamble and Apple?

Answer by Sophie B
they go up because the stock pays dividends when sales go up..

Answer by Keith
There are about a million things that decide when a stock goes up or down. Best to wait for the markets to get into a trend and learn a lot about stocks before you invest.
You can use the My Portfolio area in finance.yahoo.com to track any number of stocks you like. Finance.google.com is my favorite place for charting and tons of other info.
Google for investing tutorials to learn more.

Answer by willwork4food89
A “Bull” market is just a general term meaning that the market is doing well. The market is doing well because the economy is doing well. The economy is doing well because people are making and spending money.

The thing to remember is that stock prices don’t have much to do with actual revenues and profits. The price of the stock is basically the collective perception of the traders. The company can be in the tank, but if enough people think the company is golden the price will remain high (*cough* Enron *cough*)

Answer by jay
A bull market is just a word describing that the overall market is doing good. Also it means that more people are buying than selling. Yes, if you were in a bull market the stocks would likely go up. You get to a bull market when theirs been good news about the economy or just a sector, like techonlgi, or retail.

Answer by Alan Greenspan
proctor and gamble probably has a low beta, so will not move much in any market condition, but apple should have a high beta and will move faster, but in a bull market both will go up, and a bear market both may move down, but apple will be more volatile.

bull markets are when the general move of stocks is up

Give your answer to this question below!
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