Chart of the Day – $AAPL Turnover?

by Dan September 8, 2014 3:01 pm • Commentary

Ok people, we are almost there. Apple’s iPhone 6 media event tomorrow at 1pm eastern.  We have written our share on expectations and price action over the last week, so not gonna bore you on that front, but if you want to catch up:

Sept 5th: One More Thing On $AAPL’s Ability to Deliver on High Expectations

Sept 4th: Wednesday’s Notable Options Activity: Just $AAPL

Sept 3rd: Name That Trade – $AAPL: iWatching Apple

As for today’s price action it is interesting to note that as of 2:30pm, total options volume is only two thirds of the average over the last month, and likely to fall below the average by day end.

The most active strike though is the Sept 12th (this week) 90 puts, with over 43,000 trading, most of them bought to open for .25 when the stock was $98.80 in the morning (there was only 7400 open interest in the strike coming into the day).   So the break-even on these puts is down 9% on Friday’s close at $89.75, a level that the stock has not traded at since early June.

It’s also important to note that the implied move for the remainder of the week is about 4.25% (the Sept 12 weekly 98 straddle with the stock $98.18).  Put another way, the options market is implying that Apple stock will move about $26 billion in either direction by the end of the week on the outcome of tomorrow’s launch.

Regular readers know our view towards placing too much credence in unusual options activity (if not read our post from earlier this year: Unusual Options Activity: Why it Can Matter & Why it Usually Doesn’t) but the liklihood that the buyer of the weekly 90 puts actually thinks that the stock will be down 10% by Friday’s close is probably quite small and this could merely be a low premium way to lock in some protection, albeit way out of the money protection.  I would also add that from my experience (in a past life) as an institutional money manager, heading into the last qtr of the year it makes a lot of sense to protect some of your biggest winners into potentially volatile events.

The one year chart below of AAPL shows the near term importance of the stock holding the prior breakout level on the upside at about $95 (yellow) and how last week’s break below $100 on volume (red) could serve as near term resistance:

AAPL 1yr chart from Bloomberg
AAPL 1yr chart from Bloomberg

As we stated last week, elevated levels of implied volatility into tomorrow’s event make stock replacement or put protection expensive for existing longs, but collars (selling upside calls and using the proceeds to buy downside puts) could be the way to keep a bullish view intact in the near term if one is fearing a sort of “sell the news” reaction following the event.