Why AAPL seems due for a big move on the charts
Tech titan Apple Inc. (NASDAQ:AAPL) is up 0.8% at $117.51, and analysts are weighing in ahead of the company's earnings report tomorrow. Drexel Hamilton said it continues to see AAPL as a Top Pick for 2016, and expects "the iPhone 7 cycle will return the iPhone franchise to growth." Meanwhile, Piper Jaffray reiterated its "overweight" rating, and predicted the "shares will move higher as we approach the iPhone 10th anniversary release in the fall of 2017." Below are three reasons now might be an opportune time to buy options to profit from short-term volatility in AAPL.
1) It's a busy week. Not only is the company's highly anticipated quarterly earnings report slated for release after the close tomorrow, but the firm is expected to unveil a new MacBook at its media event on Thursday, Oct. 27. In addition, Apple said today its new Apple Watch Nike+ will be available on Friday, Oct. 28. A packed calendar of events could translate into several volatility-stirring catalysts.
2) It's a historically positive week, but the technical outlook is iffy. AAPL tends to fare relatively well the first week of the monthly options expiration cycle, which happens to be this week. Since 2014, AAPL has been the second-best S&P 500 Index (SPX) component the week after standard monthly options expire, averaging a return of 1.73%, and ending the week higher more than two-thirds of the time. AAPL also tends to outperform the first week of the expiration cycle compared to other weeks, with the stock averaging a loss of 0.11% in other weeks since 2014, according to Senior Quantitative Analyst Rocky White.
That said, the past four "first weeks" have actually been negative for AAPL. Plus, the stock is staring up at a familiar speed bump, per the chart below. AAPL has stair-stepped 31.2% higher since hitting an annual low of $89.47 in mid-May, but is facing the $118-$120 region, which contained AAPL's rally attempt in late 2015. This area also represents a 61.8% Fibonacci retracement of the stock's plunge from mid-2015 to May 2016. Further, the November 120 call is now home to peak front-month open interest, with more than 73,000 contracts outstanding, which could translate into an options-related speed bump.
3) Options are attractively priced. The stock's Schaeffer's Volatility Scorecard (SVS) sits at a lofty 95, indicating that AAPL has tended to exceed option players' volatility expectations during the past year -- a boon for premium buyers. What's more, the stock's Schaeffer's Volatility Index (SVI) of 26% is in the bottom quartile of its annual range, suggesting front-month AAPL options are attractively priced right now, from a historical standpoint.
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