Apple Put Options Premiums Rich Ahead of Earnings

AAPL stock has a history of positive earnings reactions

by Karee Venema

Published on Nov 1, 2018 at 10:49 AM
Updated on Jun 24, 2020 at 10:16 AM

It's been a busy month for the shares of Apple Inc. (NASDAQ:AAPL), per the stock's 30-day historical volatility of 34.6% -- in the 95th annual percentile. Today, the security is down a modest 0.1% to trade at $218.55, but the options market is pricing in a larger-than-usual move after the iPhone maker reports earnings later tonight.

At last check, Trade-Alert pegged the implied earnings deviation at 7.6% -- doubling the next-day move of 3.8% Apple has averaged over the last two years. The bulk of these earnings reactions have been positive, including the two most recent, but not one of the eight post-earnings performances has been large enough to match or exceed what the options market is anticipating in tomorrow's trading.

Options traders have been positioning for a downside move. At the International Securities Exchange (ISE), and Chicago Board Options Exchange (CBOE), AAPL's 10-day put/call volume ratio of 0.67 ranks in the 84th annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

Meanwhile, Apple's 30-day at-the-money implied volatility (IV) of 38.3% ranks in the 98th percentile of its 12-month range, indicating short-term options are pricing in elevated volatility expectations at the moment -- not unusual ahead of an expected event like earnings. Plus, the stock's 30-day IV skew of 17.1% registers in the 95th annual percentile, meaning puts have rarely been more expensive relative to calls.

It's already been a busy week for Apple, which unveiled a number of new products, including the latest Macbook iteration. Plus, the company has reportedly explored taking a stake in iHeartMedia, though no deals have been made. Amid all this, AAPL stock wrapped up its worst month since March, finishing October down 3.1%. However, the stock found support at its 80-day moving average, and is still up 28.9% year-to-date.

apple stock daily chart nov 1


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