We have been writing recently about the disconnect between some of the realized volatility and implied volatility in the broad indexes. One place that has not suffered a disconnect is AAPL. I recently asked the question if AAPL is a different stock. Of course, I got the smack down from the loads of the AAPL faithful. I don’t mean to question if the iPhone is cool or if they will sell gobs of iPads this year. They probably will. What is different is some of the things that were not really in question-- margins, beating earnings, and 50% per year revenue growth which started to unravel a bit. The competition is rearing its head, and it remains to be seen how AAPL deals with it, other than suing everyone for patent infringement. They are not the only ones doing the suing I might add.
if you look at the 360 day realized volatility in the chart below, it is clear that while AAPL has stalled lately; even though the longer term realized volatility has not. The name has gone from 24% on a 360 day HV to 29.5%. That is a big move for a $530 stock. It is also the basis for my idea of a stock’s “personality”, and the fact that AAPL is not as predictable as it once was. When the long term HV ticks up or down in a big way, that is the siren going off that the stock is not what it once was. It is like MSFT at the start of the 90’s and now. There is no denying the realized vol story is changing in AAPL. The question is for how long?
Livevol (r) www.livevol.com
If traders were looking at the implied volatility story today, the OTM call IV, which is long a favorite of the AAPL lover, took it in the chin today. Note how the OTM calls were the biggest decliners of all the options that traded in AAPL. I circled the dark red, big declining areas in yellow and used an appropriate word to describe it.
Paper simply sold the upside calls they bought when AAPL was trading $505. What I note here is that they are not reloading or looking for higher levels yet. They are just happy to get a solid bounce would be my guess.
The best trade is still the short time spread ATM in here, as long as the IV stays in the 40’s and the short term is before earnings. This is a very advanced trade and requires a lot of margin.
The second trade would be a short iron condor like we have in our Strategy Letter. IV in the mid-40’s is still worth a nibble, but I would keep the size small and term no later than Jan expiration.
Note that while the two trades are different from a gamma perspective, they are placed very differently relative to where AAPL is trading. Buy the gamma ATM and sell the gamma as far from the ATM as one can find some reasonable premium. Both trades are short vega, and selling 40% IV is much different than selling 30% IV.
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