Put Options Pick Up Ahead of Crucial Apple Inc. (AAPL) Earnings Report

Apple Inc. (AAPL) options traders are active as the tech giant gears up to report earnings tonight

by Alex Eppstein

Published on Jul 26, 2016 at 1:21 PM

Apple Inc. (NASDAQ:AAPL) is set to report earnings after the close, ahead of tomorrow morning's reports from another pair of blue-chip stocks. The event will be crucial for AAPL shareholders, who have watched the Dow stock wind its way lower over the past year. Meanwhile, ahead of earnings, options traders are busy, especially on the put side of the aisle.

Diving right in, put options are crossing at nearly double their usual intraday rate. Most active is the weekly 7/29 95 strike, where it appears traders are buying to open contracts in the hopes AAPL will drop below $95 by this Friday's close, when the series expires.

Slightly longer-term traders, meanwhile, are targeting the critical $100 century level, with a mix of buy- and sell-to-open activity detected at the August 100 call, based on data from the International Securities Exchange (ISE). In short, the buyers believe AAPL will finally break through this recent area of congestion, while the sellers hope resistance holds over the next four weeks.

Longer term, it's the call buyers who have been in control. According to data at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.79 AAPL calls for every put over the last 10 sessions -- a ratio that ranks in the 81st annual percentile.

At the same time, short sellers have been hitting the exits. During the past two reporting periods, short interest declined almost 46%, and just 1% of AAPL's float is sold short. Elsewhere, the brokerage crowd remains upbeat, sporting 26 "buy" or better ratings against a mere five "hold" or worse recommendations.

This collective optimism could spell trouble if AAPL comes up short on the earnings stage, as it has recently. In the session following the company's April and January reports, the stock lost 6.3% and 6.6%, respectively. A repeat performance could reinvigorate short sellers, and/or force bullish traders and analysts to the exits, which could exacerbate technical pressure. Interestingly, though, expectations are relatively muted ahead of the big event, as the Dow stock's 30-day at-the-money implied volatility of 24.5% is the lowest it's been ahead of an earnings report over the past eight quarters, according to Trade-Alert.

Turning once more to technicals, Apple Inc. (NASDAQ:AAPL) has been anything but impressive. At $97.39, the stock has surrendered one-fifth of its value over the past year, and as alluded to earlier, is staring up at round-number resistance at the 100 strike. Potentially reinforcing this overhead speed bump is AAPL's historically significant 40-week moving average, which turned back rally attempts late last year and in April.

aapl weekly chart july 26

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