Wednesday, February 15, 2012

Apple Inc. (AAPL) - Risk Is Exploding, So Says the Option Market

AAPL is trading $511.93, up 0.5% with IV30™ up 12.9%. The LIVEVOL® Pro Summary is below.


Click for Free Trial


Apple Inc. (Apple) along with its subsidiaries is engaged in designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a range of related software, services, peripherals, networking solutions, and third-party digital content and applications. [Lol]...

I feel like the first sentence about the price and vol could be the entire blog, but... ya know, I'll actually write something... Perhaps a new perspective here.

Let's start with the Skew Tab, first. Though, it's the Charts tab (next), where the analysis really gets... going...

Line by line and month by month, the skew is quite normal (even pretty). The front shows a parabolic shape which is normal this close to expo as the OTM options remain "sticky." For more on what skew is, how it changes, what "normal" means and why it exists, you can read this post:
Understanding Options Skew.

 But, it's not the line by line vols that are interesting here, it's the holistic view that snapped my attention.

Let's now turn to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

First, in the stock portion, we can see that from mid Dec until now, the market has decided the stock is worth ~$130 billion more. Said differently, AAPL has gone up an entire Intel in two months. Or, try this, the rise in market capitalization alone would make the 18th largest company in the country. Is the company worth that much more? Or how about this, does the option market reflect a new valuation is in fact in equilibrium relative to the past?

Let's look to the most recent vol move. I've drawn the handy yellow arrow (also in the stock chart). While the "normal" behavior in an established company is to see vol drop as stock price rises, in fact, that is not what we see for AAPL. Ney, rather, the implied has popped from 18.29% on 2-6-2012 to 33.01%, as of this writing.

 Another data point for consideration, the IV30™ was 32.36% the day of earnings -- today it's higher than that level. Listen up -- the option market reflects 80% more near-term risk in AAPL form just nine calendar days ago. That risk level is greater than the risk associated with the most recent earnings release (the first without Mr. Steve Jobs).  Not enough.. How about this... Volatility is a percentage. With the stock up $130 and a higher vol, the implied confidence interval in AAPL has gone from +/- $136 to +/- $336.

That doesn't feel like equilibrium. That doesn't feel settled. That doesn't feel like safety.

I've included the Options Tab, for completeness.

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

1 comment:

  1. This is a stock you want to stay away from unless you are a buy and hold kind of person. Apple stock defies any and all kind of rules of markets, investing, or trading.