Bullish Options Prices Pop as Apple Stock Soars

A buyback boost and upbeat guidance is helping offset iPhone sales weakness

May 2, 2018 at 10:17 AM
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Shares of Apple Inc. (NASDAQ:AAPL) are trading up 4% at $175.91, after the tech giant reported fiscal second-quarter profit of $2.73 per share on $61.14 billion in revenue, more than analysts were expecting. And while iPhone sales came in just below the forecast -- echoing recent concerns on Wall Street -- Apple gave upbeat current-quarter revenue guidance and said it is increasing its share buyback program by $100 billion and its quarterly dividend by 16%.

Analysts have been quick to chime in after Apple's earnings, too, and most of the attention has been upbeat. Included in a round of price-target hikes was one to $208 from $200 at Canaccord Genuity -- a 23% premium to last night's close. And though Citigroup removed the equity from its U.S. focus list, it reiterated its "buy" rating, and said "the negativity on Apple stock is overdone."

Today's post-earnings pop has Apple shares bouncing off familiar support in the $164-$165 region, which served as a floor in November and March, and represents a 10% pullback from the stock's mid-March record high of $183.50. Plus, the shares are now trading back above their year-to-date breakeven level.

Along with the stock price, Apple options volume is surging, with around 225,00 calls and 161,000 puts on the tape so far -- five times the expected intraday pace. The weekly 5/4 series is most popular, accounting for nine of AAPL's 10 most active options. The weekly 5/4 175-strike call is most active, and it looks like traders could be liquidating their positions.

Regardless, today's post-earnings upside has short-term Apple call options pricing in remarkably high volatility expectations, compared to their put counterparts. At last check, AAPL stock's 30-day implied volatility skew of 11.9% was ranked in the 84th annual percentile.


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