Tuesday, May 27, 2014

* Apple (AAPL) - Resurrection: When AAPL Innovates, It Changes the World. AAPL Has Found its Post Jobs Identity.

AAPL is trading $625.59, up 1.9% with IV30™ up 14.4%. The Symbol Summary is included below.

Provided by Livevol

This is a price and volatility note on the largest company in the world, that, oddly, has all of sudden seemed to have defined itself for the first time post Steve Jobs. Yeah, there are rumors that AAPL is taking another step at innovating... and that's no joke.

When AAPL innovates, it changes the world -- that's the reality of the last five years.  Whether or not it's the reality of the next five years, we'll have to see.  But the equity market is certainly reflecting a resurrection, and for the first time ever, a corporate identity post Steve Jobs.

It actually gives me great pleasure to write this article after having authored a seven-piece story on how AAPL had fallen.  You can read the final of those posts here:

Apple (AAPL) - Part 7 (The End): This Just Isn't the Company it Used to Be... And it Never Will Be Again.

Let's start with the Charts Tab (two-years) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

We can see the huge run-up since AAPL hit its annual low of $379.67.  The stock is up 65% in less than a year.  That rise is equivalent to ~$210 billion in market cap, which alone would make the ~14th largest company in the world (approximately the size of Proctor & Gamble).

But, the real talk of the town isn't that rise, but rather, the last month.  Check out the stock chart since the day of the earnings release on 4-23-2014.

Provided by Livevol

AAPL is up almost 20% in the last month.  That market cap gain represents ~$90 billion which alone would be ~65th largest company in the world.  So, yeah, AAPL has grown the size of BA in a month...

But why now?... Or better yet, why at all?

The answer is simply, AAPL is back to innovating.  They may not be breaking down the walls of technology like the iPod, iPhone and to a certain degree, iPad, but they are innovating nonetheless.  Here's some news from today:

On Tuesday after Wall Street’s Memorial Day break, rumors about Apple's planned presentation at next week’s WWDC are swirling — and they’re driving up the Cupertino computing giant’s stock to highs it hasn’t seen in nearly two years.


The main rumor regarding Apple comes from the Financial Times, where a report says that Apple will introduce a new software platform that will turn their smash hit iPhone “into a remote control for lights, security systems, and other household appliances.” Such an announcement would be the latest big Silicon Valley move into the so-called “Internet of Things,” putting Apple again head to head with Google.

Source: Frobes via Yahoo! Finance: Apple, With Smart-Home Rumors Flying, Leads Tech Surge, written by Brian Solomon.

When AAPL innovates, it changes the world -- that's the reality of the last five years.  Whether or not it's the reality of the next five years, we'll have to see.  But the equity market is certainly reflecting a resurrection, and for the first time ever, a corporate identity post Steve Jobs.

Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

The implied volatility (the forward looking risk in the stock price as reflected by the option market) reached near two-year lows just a few days ago.  But things have changed.  The IV30™ has popped from ~17.39% on 5-13-2014 to now ~21.42%, or a 23% rise in about two weeks.

So we have AAPL up about the size of BA in a month and the risk as reflected by the option market up 23%.  Hey, AAPL is alive again... finally.

The Skew Tab snap (below) illustrates the vols by strike by month.

Provided by Livevol

We can see the skew has a parabolic shape reflecting both upside and downside tail risk.  This is actually abnormal skew, and does illustrate a sort of "new life" in AAPL risk as reflected by the option market.

To read more about skew, what is and why it exists you can click the title below:
Understanding Option Skew -- What it is and Why it Exists.

Finally, the Options Tab is included below.

Provided by Livevol

Using the Jun $625 strike, the option market reflects a price range of [$598, $652] by the end of trading on Jun 20th.

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.

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1 comment:

  1. Won't there be a high cost to upgrade light switches, security systems, etc? I called my cable company which has a smart system and the cost just didn't make sense vs. potential benefit.