No 'Bad Blood' Here: The Force Even Greater than Apple Inc. (AAPL)

AAPL volatility is near all-time lows

by Adam Warner

Published on Jun 23, 2015 at 7:55 AM
Updated on Jun 23, 2015 at 8:12 AM

Apple Inc. (NASDAQ:AAPL) is the world's largest company… by a lot. This, from The Online Investor:




Yet, there's a force even greater than Apple. From the AP, courtesy of Yahoo! Finance:

"Taylor Swift has Apple changing its tune. 

Hours after the pop superstar criticized the giant tech company in an open letter posted online, Apple announced Sunday that it will pay royalties to artists and record labels for music played during a free, three-month trial of its new streaming music service. 

'When I woke up this morning and I saw Taylor's note that she had written, it really solidified that we needed to make a change,' said Apple senior vice president Eddy Cue in an interview with The Associated Press."

All of this leaves me with one question: If you give in so fast to Taylor Swift, how are you going to stand up to Putin? 

Wait. Apple's not running for office -- never mind. 

OK, seriously, there's no way to proxy the implied volatility of Taylor Swift. But fortunately, we do have a way to easily check in on AAPL volatility. And for a company with a news announcement and/or a major product launch every other day, AAPL vol acts quite poorly. Here's the CBOE Apple VIX (VXAPL) vs. the actual CBOE Volatility Index (VIX) over the past year.




Remember that with AAPL's huge market size, a good portion of actual VIX does depend on the vol of AAPL. And right now that AAPL vol sits at 52-week lows. The AAPL vol is actually near its all-time lows -- at least, as measured by VXAPL. We were lower than this after the April 2014 earnings report, and that's about it. Looking at the VIX of AAPL before the CBOE started indexing shows that this low-20s vol is about the floor. 

That's not to say it's "cheap," though. Ten-day realized volatility (RV) in AAPL sits near the mid-11s, and that's actually up slightly over the past week. And that's more or less the floor in AAPL RV going back in time. So, technically traders are actually overpaying for AAPL options -- or, more accurately, expecting an uptick in RV going forward. That's a pretty standard options premium in an individual stock that's seeing vol scrape against the lows. You're not likely to take any sort of "vega" hit, though you might see a "theta" hit, as there's likely not much news coming out in the next couple of weeks, and we have July 4 right around the bend. 

So, if Taylor Swift really wants to party like it's 1989, she should maybe sell some AAPL options now and sit and count her royalties for a week and change, and then cover and perhaps go long vol ahead of the holiday and ahead of the presumed earnings vol bump. 

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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