Apple, Nvidia Stocks Sink on Taiwan Semiconductor Outlook

TSM warned of weak demand for smartphones and chips used for cryptocurrency mining

Apr 19, 2018 at 10:25 AM
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The U.S. stock market is trading in negative territory this morning, with the Nasdaq suffering the worst of its peers so far. Weighing on the tech-heavy index are sharp drops from iPhone maker Apple Inc. (NASDAQ:AAPL) and graphics card developer NVIDIA Corporation (NASDAQ:NVDA), after Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) warned of weak demand for smartphones and cryptocurrency-mining chips in its soft current-quarter and full-year revenue target.

Mizuho Doesn't See Much Upside for Apple Stock

Apple stock was last seen down 1.8% to trade at $174.56, with a bearish note from Mizuho Securities only adding pressure to the blue chip. The brokerage firm said it doesn't see much upside to 2018 iPhone unit shipment estimates, which could negatively impact fiscal third-quarter guidance, and thinks any upward revisions to Apple's share buyback program is already priced in. Mizuho reiterated its "neutral" rating and $175 price target.

Options traders have been growing increasingly skeptical of AAPL stock, too, which is currently trading 3.2% above its year-to-date breakeven level. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.75 ranks in the 99th annual percentile, meaning puts have been bought to open relative to calls at a faster-than-usual clip.

Anyone buying short-term put options in today's session are contending with inflated premiums. Apple's 30-day implied volatility skew of 14.8% ranks in the 95th annual percentile, indicating puts are pricing in much higher volatility than their call counterparts.

Nvidia Stock Tests Key Trendline

Nvidia stock is down 2.2% to trade at $231.20, testing a foothold atop its 80-day moving average. This trendline served as support in December and February, but kept a lid on the shares earlier this month. Just below here is NVDA's 120-day moving average -- located at $221.70 -- which contained the stock's pullback from its March 13 record high of $254.50.

Speculative players have been purchasing puts relative to calls at an accelerated pace recently, per NVDA's 10-day put/call volume ratio of 0.82 at the ISE, CBOE, and PHLX -- in the 92nd percentile of its 12-month range. Considering the equity is still up 131% year-over-year, it's likely some of this put buying could be shareholders protecting paper profits against any downside risk.

Regardless, Nvidia has consistently rewarded premium buyers over the past year. Its Schaeffer's Volatility Scorecard (SVS) reading comes in at a lofty 88 (out of a possible 100), indicating the shares have tended to make outsized moves in the last 12 months, relative to what the options market has priced in.

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