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
Updated on Jun 24, 2020 at 10:16 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 39th Anniversary Exclusive!

8 Top Stock Picks for 2020

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


  
 
 

Partnercenter