The market did not like CAT or MSFT earnings today. It actually felt good to know stocks could sell off on bad news instead of the heroin induced QE state of suspended animation that has taken over equity prices for the last couple of years. I don’t think the MSFT earnings were 10% bad but the market did not agree with me. We are not talking MSFT, we will talk AAPL.
The news is out Apple is going to have the I-Phone 6 AND the I-Phone 6 PLUS!!! Plus APPLE PAY and the I-Watch. Based on what the stock did, the market acted to the AAPL conference much like McKayla Maroney would to a Silver Medal. With that the VXAPL got smoked. Even more so, the VIX options expiring this week and next week took it in the chin. That being said, it appears the market is still holding out hope for some more movement here is a chart of VXAPL:
The big news right now is that AAPL did not announce any new hardware. There are hints and the developers like the new software, but the bread and butter of hardware is still not announced yet. That makes this conference a little different in that AAPL has held up pretty well after the big rally going forward. How it reacts next week is anyone’s guess.
To a large extent that will have to do with how paper treats the new AAPL stock around $90 bucks a share. I know the intrinsic value of AAPL is not changing but those smaller stock prices could bring back in the mom and pop players who were unfazed by the mini options.
As I write this the AAPL WWDC is going full tilt and the stock has not been able to hold up for most of the day. Granted it had a near $40 run up last week, $606 to $642, so a pullback is not out of the cards. That run also helped push the SPX to record highs on not the greatest news in the world. Part of that run is helping to damp down the volatility a bit in the big indexes of which AAPL is a part.
Somewhere, as the market kicks around the all-time highs, the tech stocks are recovering from the shellacking they took. I don’t know if NFLX will see $400 this year or TSLA $255. We do have volatility in the large indexes scraping the bottom of the barrel so the big tech selloff has subsided for now.
This is why we don't sell cheap straddles: We noted yesterday that AAPL IV was at extremely low levels into its earnings announcment today. Looking at a two year chart of AAPL 30 day IV one will notice this was the cheapest IV has been over that period of time.
The weekly straddle that expires Friday went out at an insanely cheap 22.00 a pop. For AAPL, where typically one might expect more like 30 and on the low end at LEAST a 5% move, priced in 22.00 is an outlier...as in amazingly cheap.
There was another nice little rally today on the back of some decent earnings reports. The tech end of the market has largely shrugged off the GOOG earnings and is looking forward to FB and MSFT. Note how I did not mention AAPL.
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There was a good reason for yesterday's strange AAPL skew structure from yesterday: traders thought AAPL was going to move less than the straddle price. Take a look at the closing options prices from AAPL yesterday.
One of the questions Andrew and I get most is "How do I find edge in the market place?" There are thousands of ways to do it, and many of them take years of training and trading to learn. There are also ones that are much simpler than they may seem. One way of capturing edge, that Andrew and I like is buying options in stocks that have vols that are at multi-year lows, especially when they are high flying stocks.
One clear example is AAPL last year. Right before the stock ripped from the high 500's to the 700's the IV on calls was at an all-time low.