Why Pre-Earnings Apple Inc. (AAPL) Options Look Like a Bargain

Short-term Apple Inc. (AAPL) options look relatively inexpensive, even though earnings are just around the corner

by Alex Eppstein

Published on Oct 18, 2016 at 11:02 AM

Apple Inc. (NASDAQ:AAPL) is in the bullish crosshairs this morning. The tech stock received price-target hikes at Deutsche Bank (to $108) and Stifel (to $130), with the latter representing annual-high territory. As such, the shares have added 0.4% to trade at $118.03 -- and it looks like a very opportune time to purchase short-term premium on AAPL options, from a volatility perspective.

The tech company is slated to report earnings one week from tonight, but as we noted last week, volatility expectations are relatively muted. Specifically, AAPL's Schaeffer's Volatility Scorecard (SVS) of 95 suggests the stock has tended to make bigger moves than what the options market has priced in during the prior year. What's more, the equity's Schaeffer's Volatility Index (SVI) of 25% ranks in the bottom quartile of its annual range, suggesting short-term contracts can be scooped up on the cheap, relatively speaking.

Speaking of which, it looks like options traders have been buying to open AAPL calls over puts at an extreme rate ahead of earnings. Specifically, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio registers at an annual high of 2.56. Similarly, Apple's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.61, in the low 27th annual percentile -- hinting at a pronounced call bias among options expiring in the next three months.

It's more of the same today, too, with calls roughly doubling puts -- 90,000 contracts to 47,000. However, the majority of the call options being exchanged belong to the front-month October series, which will expire Friday night, ahead of next week's earnings report.

High hopes aren't restricted to the options crowd, either. For instance, 28 of 33 analysts tracking AAPL rate it a "buy" or better. Plus, pessimism has been unwinding among short sellers. During the most recent reporting period, short interest dropped 9%, and now accounts for only 1% of the stock's outstanding float.

Apple Inc. (NASDAQ:AAPL) has done plenty to warrant this bullish attention. Since bottoming in May south of $90, the shares have been stair-stepping their way higher. In fact, over the past three months, AAPL stock has outperformed the broader S&P 500 Index (SPX) by more than 23 percentage points.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

A Schaeffer's exclusive

6 Sectors for Summer

Access your FREE insider report before it's too late!



NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories

Huge New Legal Marijuana Market Has Shortage Crisis
250 million Europeans have access to medical marijuana. There's already a shortage....
Tiffany Stock Drops as Takeover Talks Dissipate
LVMH was to acquire Tiffany & Co in a billion-dollar deal
Coty Stock Glows Up with Possible Kardashian Cosmetics Line
The trendy cosmetics company is in talks with reality TV star Kim Kardashian West over a line of beauty products
The Next Big Player in U.S. MJ Boom
Most pure-play marijuana stocks in the U.S. trade on the Over-the-Counter stock exchange.