Schaeffer's Trading Floor Blog

Mixed Messages on Apple Inc. (AAPL)

What AAPL Volatility May Be Telling Us

by 3/20/2013 7:45 AM
Stocks quoted in this article:

We interrupt our 24/7 coverage of All Things Cyprus to bring you a tidbit on one of the forgotten names out there -- Apple Inc. (NASDAQ:AAPL - 454.49).

OK, it's not exactly under the radar just yet, but there's something interesting about AAPL volatility that I learned from Dominic Chu on Bloomberg.

Here's a chart of Apple Inc. volatility over the past six months. The 30-day implied volatility (IV) is the yellow line, the 20-day realized (or historical) volatility (HV) is the blue line.

Daily chart of Apple Inc. (AAPL) since December 2011
Chart courtesy of iVolatility

Setting aside the blip in historical volatility around earnings, it is a pretty plain vanilla picture. Implied volatility at around 29 is pretty normal for AAPL, and it's almost perfectly in line with realized vol. So nothing to see here, right?

Well, here's the same studies in the Technology SPDR (ETF) (NYSEARCA:XLK), the exchange-traded fund that tracks tech stocks.

Daily chart of Apple Inc. (AAPL) since December 2011
Chart courtesy of iVolatility

It is in line with itself -- IV is modestly higher than trailing HV. But it is at an extremely low absolute value, way more in line with the CBOE Market Volatility Index (INDEXCBOE:VIX) and way less than AAPL, its biggest component. In fact, the disparity has gotten so large that it's actually a record spread between the two, per Mr. Chu.

In other words, through this lens, AAPL implied volatility has gotten somewhat pricy.

On the margins, that is fairly bullish for Apple Inc. In a small stock, I'd view a volatility spike as a leading indicator. With little volume, smart money will likely rule the roost. But in a big-volume, hugely watched stock, it becomes more of a contra-tell. It is a sign of Fear, and Fear is more often than not overdone.

But there's a catch. Apple's Schaeffer's put/call open interest ratio (SOIR) number is not showing much fear. If anything, this ratio is tilted more towards calls than normal. So the relatively high price the market is paying for options is somewhat focused on calls. That's not so bullish.

So putting it all together, we can see some excess demand for AAPL options. But it is apparently demand for calls. The stock has acted a bit better lately, but it's still not a great sign that the public at large wants to catch the real turn.

Disclaimer: The views represented on this blog are those of the individual author only, and do not necessarily represent the views of Schaeffer's Investment Research.

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