After the close Tuesday Apple (AAPL) will report their fiscal Q1 results. The options market is pricing about a 4.5% one day move in either direction, which is a tad shy of the 5.35% 4 qtr avg. I will do a thorough preview on Monday, but I quickly wanted to touch on the technical set up into next week, as the stock has made back all of last week’s losses and now testing fairly important near term technical resistance level:
The break above the downtrend is obviously impressive and reflects optimism about the company’s ability to deliver on high expectations. That being said, the higher the stock goes into the print the greater the expectations and I think means a less of a likelihood that the stock realizes the implied move on the upside. I think it is safe to say that the investment community expects a monster iPhone 6 number and any disappointment on that front, and more importantly any disappointment on forward guidance would likely cause the stock to re-test the bottom end of the recent downtrend near $105 on its way to $100.
While the implied move seems fairly reasonable, I think it is important to note that options prices are well above levels prior to the last few quarterly reports, with 30 day at the money IV at 33%. That’s pretty massive for the largest market cap company in the world of $657 billion:
Implied vol for earnings events in AAPL had been steadily declining into its 7-1 split in June of 2014, which makes sense given that that the stock performed well into and out of the split. But now with a new product reflected in this event, and the possibility of greater percentage moves of a 100 dollar stock versus a 700 dollar stock, the higher vol into this event makes sense. But as stated above, this is a massive market cap, and it would be surprising to see the stock violate either its recent highs or support near $100 on the event itself.
We have a few ideas for stock alternatives, yield enhancement and protection but will roll them out Monday after we have done bit more work on the stock.