Can This Technical Level Keep Apple Inc.'s (AAPL) Losses in Check?

Following Apple Inc.'s (AAPL) recent swoon, a new level of technical support could be coming into focus

May 10, 2016 at 3:27 PM
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Apple Inc. (NASDAQ:AAPL) has had a rough ride lately, suffering its worst losing streak in nearly two decades -- exacerbated by a disappointing earnings report -- and hitting an annual low of $91.85 on Friday. Today, the stock is responding positively to news that major Canadian banks are ramping up support for Apple Pay. Meanwhile, closer to home, the U.S. Federal Communications Commission (FCC) and Federal Trade Commission (FTC) have contacted Apple, among other mobile phone makers and service providers, to question their methods of addressing security issues. The stock was last seen trading 0.5% higher at $93.25.

On the charts, AAPL has given up more than a quarter of its value in the past year, and last week closed below its 200-week moving average for the first time in more than seven years. While traders in the options pits had long been eyeing the century level, the recent decline has a new zone in focus.

Specifically, the $92-$95 region has been home to the shares for over a week. The $92 level corresponds with the stock's annual low, as well as its August 2015 low. This region also provided technical support in January and February, as well as in mid-2014.

AAPL Weekly Chart

Despite a round of bearish brokerage notes following earnings, analysts have remained largely in AAPL's corner, with 83% maintaining "buy" or better ratings. And short interest is still low, representing less than 1% of the equity's available float.

But option traders have been somewhat more pessimistic than usual. AAPL's 10-day put/call volume ratio of 0.72 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks higher than 83% of the past year's readings.

Still, calls have been the options of choice, particularly among near-term traders. This bias is seen in the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.59 -- a new annual low. Looking more closely, peak call open interest in the front-month series sits at the deep out-of-the-money May 110 strike, while peak put open interest in the same series sits a bit closer to home, at the 100 strike.

Option volume has been relatively light lately, but now could be an attractive time to pick up AAPL's near-term options, as the stock's Schaeffer's Volatility Index (SVI) of 23% is seated in the low 16th annual percentile. That means the market is currently pricing in unusually low volatility expectations for Apple Inc. (NASDAQ:AAPL).

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