Chart of the Day – $AAPL Implied Volatility

by Enis December 6, 2012 11:37 am • Commentary

AAPL’s stock has traded from a high of $594.59 on Monday to a low of $518.63 this morning, and now trading almost 30 dollars above that morning low.  Pretty much the definition of volatility.  Not surprisingly, market makers have started crying “Uncle” as the realized volatility has moved higher, and 30 day implied volatility is now priced near the highs of its last 2 years.

Here is the 2 year chart of AAPL 30 day implied volatility (red) vs. 30 day realized volatility (blue):



AAPL implied volatility has only reached the 40 level during the summer/fall of 2011 when the market fell 20%, and prior to earnings announcements this spring and fall.  However, realized volatility is actually higher than it was during the summer/fall market swoon in 2011, as AAPL’s retracement on this selloff has been much more emotional and severe (perhaps not a surprise given that the selloff started from much more lofty heights).

The only previous instance where realized volatility was higher was this spring, when the stock made it above 600, then fell back below it in quick fashion.  However, the nature of the recent moves are certainly more extreme this time around, largely in my view because the stock has finally broken its long-term bullish uptrend.

I am short 30 day implied volatility through my Jan13 1×2 call spread, and so the benefit of my directional call has been offset by implied volatility moving higher.  But with implied volatility at these levels, risk/reward is certainly on my side with this trade.