How Apple Inc. (AAPL) Option Traders Are Preparing for the Worst

Short-term option traders are placing bearish bets ahead of Apple Inc. (NASDAQ:AAPL) earnings

by Josh Selway

Published on Jan 25, 2016 at 11:51 AM
Updated on Jan 25, 2016 at 12:01 PM

It's (been) time to start thinking about Apple Inc. (NASDAQ:AAPL) earnings. The tech giant's quarterly release is due out after the close tomorrow, and with reports circulating of decreased iPhone production, many investors may be anticipating disappointing numbers from the company. Based on what we're seeing in the options pits, many traders do in fact have low expectations for AAPL. 

Specifically, looking at today's option activity, there's been heavy interest at the weekly 1/29 90-strike put. Nearly 19,000 contracts have crossed here, with the next closest strike coming in with just over 9,000. Moreover, buy-to-open activity is occurring, as confirmed by data from the International Securities Exchange (ISE) -- meaning traders are either hedging their long AAPL stock positions by purchasing the out-of-the-money (OOTM) puts in case of a substantial post-earnings pullback, or they're simply expecting the shares to breach $90 before week's end, when the options expire. 

At last check, AAPL was down 0.7% at $100.70, meaning it'd have to fall 10.6% to hit $90. Historically speaking, the stock has averaged a post-earnings single-session swing of just 4.6% over the past eight quarters. Meanwhile, according to Trade-Alert, the options market is implying a 9% post-earnings move from the tech stock -- roughly double its historical average.

A quick look at the charts shows Apple Inc. (NASDAQ:AAPL) may also struggle with its 20-day moving average. AAPL hasn't closed above this level since early December, and the trendline capped the stock's gains on Friday and today. Looking back further, the shares have dropped almost 19% since their November high of $123.82. 

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