Fast Money Volatility Playbook: Apple (AAPL)

by Dan June 27, 2012 4:38 pm • Commentary

Here’s a look at something I’ll be discussing on Fast Money tonight.

AAPL‘s stock has gone side-ways as MSFT and GOOG have introduced tablets in the last 10 days,  not that surprising I suppose as these 2 “upstarts” represent the first real integrated hardware and software offerings aside from iPad in the Tablet space. But oddly, vol seems pretty fair (almost cheap) at about 30 vs the 30 day realized vol of about 28 and the 60 day realized vol of about 34.  Meaning, if you want to consider stock replacement, or hedging strategies, this is not a bad time to do it as we approach earnings season. AAPL’s yet to be announced earnings (likely to be July24th, or at least the options market is pricing Aug expiration) will likely a big one for AAPL as bears in the name question the continued pace of iPhone sales. Also,as I discussed the other day in the “MorningWord” ( here), AAPL and one of it’s main hardware competitors,Samsung, had all year seen their stocks highly correlated until this past weeks divergence. Lastly, I am waiting with bated breath, as I look at the chart of AAPL and and how the wedge that is forming will be resolved. Something is likely to give soon:



And here’s a look at the current implied vols (atm 30 day implied) vs the recent actual volatility in the stock (60 day realized). Options are relatively cheap:

With earnings likely to be during August expiration long premium could be the defined risk way to play. One has to keep in mind the July 4th Holiday week though, as options will decay meaningfully in a holiday shortened, potentially low volume week, unless volatility spikes,  compensating for the inactivity. So timing on this is crucial. But vols are telling me long options may be the way to go for a move one way or another. Here’s one last chart showing Implied and Historical vols and what happens around earnings. Vols tend to go to the mid to high 30’s and even the low 40’s into big earnings events. Right now it can be had around 30.

courtesy LiveVol Pro

I’ll be looking at this more in the coming days and weeks for any possible plays and will update here on the site.