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'Fire Sale' on Apple Inc. (AAPL) Options as iPhone Rumors Swirl

Tech stock Apple Inc. (AAPL) is making headlines, with the firm reportedly set to cut iPhone production in 2017, and now is the time for would-be option buyers to strike

Dec 30, 2016 at 12:31 PM
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Apple Inc. (NASDAQ:AAPL) is making headlines today. One of the company's manufacturers will reportedly be opening a plant in Bengaluru, India, with production set to begin in April. However, Apple Inc. is allegedly planning to slash iPhone production about 10% in the first quarter of 2017, Nikkei reports, which would mark back-to-back years of production cuts. Nevertheless, Drexel Hamilton named AAPL its top stock pick for 2017, calling it "one of the most underappreciated stocks in the world." At last check, AAPL is down 0.9% at $115.69 -- and for would-be option buyers, now is the time to strike.

Most analysts are already bullish -- with 26 of 32 rating the shares a "buy" or better -- and option players seem similarly optimistic. AAPL's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 1.77 calls bought to open for every put over the last 10 weeks. The top three open interest positions are front-month January 2017 calls -- specifically, 110-, 115-, and 120-strike calls. What's more, the January 2017 110- and 115-strike calls have seen notable open interest spikes over the last 10 days.

As alluded to earlier, there's a "fire sale" of sorts in the AAPL option pits, with the stock sporting a Schaeffer's Volatility Index (SVI) of 16%, which ranks just 3 percentage points from an annual low, indicating option players are pricing in historically low volatility expectations. Meanwhile, AAPL's Schaeffer's Volatility Scorecard (SVS) sits at an inflated 99, indicating AAPL has tended to exceed volatility expectations over the past 12 months.

From a longer-term perspective, Apple Inc. (NASDAQ:AAPL) shares have added more than 29% since their May lows, but have once again been retreating from the $118 mark. In spite of its technical troubles, AAPL is still set to finish the year in positive territory, currently up 10% -- rebounding from last year's year-over-year loss, which was the first time AAPL had come out in the red on a year-to-year basis since 2008. 

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