Apple Option Bears Active Ahead of Earnings

AAPL fell after its February report, and some option traders expect another miss

Apr 30, 2018 at 10:46 AM
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Apple Inc. (NASDAQ:AAPL) will report first-quarter earnings after the close tomorrow. Amid recent concerns about smartphone demand, it looks like options traders have been betting bearishly on the iPhone maker ahead of earnings. In addition, Barclays this morning cut its price target on AAPL stock to $157 from $168 -- representing a discount to the shares' current price.

Apple stock was last seen trading 2.7% higher at $166.71. The equity has struggled since a warning on smartphone demand by Taiwan Semiconductor, but today is attempting to avoid a sixth straight close beneath its 200-day moving average. However, AAPL stock is still staring up at the $167-$168 neighborhood, which acted as support both before and after the February correction.

apple stock chart

Last week, on April 24, Apple stock's one-day put/call volume ratio hit 1.06 -- the highest in over a year. Echoing that, on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.75 stands higher than 97% of all other readings during the past 12 months. While this ratio indicates AAPL calls bought to open still outnumbered puts on an absolute basis during the past two weeks, the percentile points to a much healthier-than-usual appetite for bearish bets over bullish among option buyers recently.

The May 165 strike saw the biggest surge in new put positions during the past two weeks, with nearly 14,000 contracts added. "Vanilla" buyers of the puts expect AAPL stock to sink beneath $165 over the next month.

It's likely the put buyers are expecting an earnings miss for Apple tomorrow night. The shares of AAPL fell 4.3% the day after their February earnings release, and edged lower after their last May earnings report. Currently, the options market is pricing in a one-day post-earnings swing of 7.2% for AAPL stock, regardless of direction, per at-the-money implied volatility data. Looking back eight quarters, the shares have averaged a single-session post-earnings reaction of just 4.1% in either direction.

 

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