Fire Sale on Apple Stock Options

Now is an opportune time for Apple Inc. (NASDAQ:AAPL) short-term options buyers to strike on the stock

Mar 7, 2017 at 1:15 PM
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The shares of blue-chip tech titan Apple Inc. (NASDAQ:AAPL) have been blazing a trail to record highs in 2017, peaking at $140.28 last Thursday, March 2. The stock's 14-day Relative Strength Index (RSI) settled last night at a lofty 81 -- in overbought territory, suggesting a pullback could be in the short-term cards. However, whether you want to roll the dice on a breather or speculate on even higher highs, AAPL stock options have rarely presented such a bargain for buyers.

In fact, in running a scan for liquid stocks with bargain-basement options, AAPL emerged at the top of the list. Specifically, Schaeffer's Senior Quantitative Analyst Rocky White looked for stocks with a Schaeffer's Volatility Index (SVI) in the bottom 10% of its annual range, and a Schaeffer's Volatility Scorecard (SVS) of 80 or above. A low SVI percentile indicates the options market has priced in relatively low volatility expectations, from a historical standpoint. A high SVS indicates the stock has exceeded options traders' volatility expectations during the past year.

Even more specifically, White hunted for optionable stocks that met the following criteria: trade at least a million shares a day; have at least 5,000 options in open interest, with at least 1,000 each of calls and puts; and trade above $8 per share. AAPL was one of only four stocks on the list with an SVS of 100 -- the highest possible -- and its SVI of 15% is below 94% of all other readings from the past year.

During the past two weeks, options buyers have been rolling the dice on more upside for AAPL, which has rocketed more than 40% in the past nine months at $139.71. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have bought to open more than two AAPL calls for every put, and the resulting 10-day call/put volume ratio of 2.01 is in the 88th percentile of its annual range. In other words, options buyers have displayed a healthier-than-usual appetite for AAPL calls over puts.

Still, total options open interest of just over 4 million contracts is on the low side of AAPL's historical range, in the 9th annual percentile. Echoing that, options volume today is on pace for just the 13th percentile of its annual range, and AAPL stock volume is pacing for an annual low, with roughly 10 million contracts traded thus far.

Against this quiet backdrop, and with AAPL's short-term options so attractively priced right now, shareholders who fear this is the calm before the macro storm, or who think overbought AAPL is due for a pullback, may want to consider reducing their risk with the stock replacement strategy touted in Monday Morning Outlook. But even those interested in a pure directional play on the Dow's best performer in 2017 should consider scooping up Apple Inc.'s (NASDAQ:AAPL) short-term options, which have rarely been more appealing. 

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