Apple (AAPL) Option Traders Bearish After Earnings

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After Apple Inc. (AAPL) reported that it had demonstrably beaten analysts' expectations for its fiscal 3rd 4th net results, enactment traders are taking actions that connote they deliberation the stock terms volition drift little successful the future. This whitethorn travel arsenic nary astonishment considering the AAPL stock terms fell 1.2% the time aft the study was announced.

Apple reported earnings per share (EPS) of $1.30 and gross of $81.41 billion, exceeding analysts' predictions calling for EPS of $1.01 and gross of $73.30 billion. Despite the large beat, Apple shares fell aft executives warned that spot proviso constraints could impact iPhones and iPads this quarter. Prior to the announcement, investors had bid up the stock price, with a sizable fig of call options successful the open interest.

Option trading volumes indicated that traders had been buying calls and selling puts; however, enactment enactment aft net suggests that traders are pessimistic astir AAPL's stock terms aft the tech elephantine bushed analysts' predictions. That's due to the fact that the terms enactment has precocious drifted lower, portion enactment enactment implies that traders are selling calls and buying puts. 

Comparing the terms enactment betwixt enactment trading enactment and banal prices connected the days pursuing net shows immoderate grounds to suggest that enactment traders whitethorn beryllium pessimistic. This should not beryllium astonishing considering AAPL's stock terms fell 1.2% the time aft earnings, closing beneath its 20-day moving average. Additionally, enactment enactment enactment increased, portion telephone enactment enactment decreased. This could hap due to the fact that enactment traders judge that AAPL is overvalued astatine existent levels and volition inclination little successful the adjacent term.

Key Takeaways

  • Traders and investors sold shares successful AAPL aft the net announcement, arsenic the banal fell 1.2% the time aft earnings.
  • The stock terms of AAPL closed beneath its 20-day moving average.
  • Put and telephone enactment enactment appears to beryllium positioned for the terms to fall.
  • The volatility-based enactment and absorption levels let for a stronger determination downward than upward.
  • This setup creates an accidental for traders to nett from a reversal successful the earnings-based stock terms movement.

Option trading represents the activities of investors looking to support their positions oregon speculators who privation to nett from correctly predicting unexpected question successful an underlying banal oregon index. The actions of these investors and speculators connote a forecast for the weeks ahead, due to the fact that enactment trading is simply a literal stake connected marketplace probabilities—a stake made by traders that are, connected average, amended informed than astir investors. The cardinal to taking vantage of this penetration is to recognize the discourse successful which the terms behaviour took place. The illustration beneath depicts the terms enactment for AAPL shares connected Friday, July 30, illustrating the setup aft the net report.

Current Trends

Over the people of the past month, the inclination of the banal saw AAPL shares moving successful an utmost range, closing good supra the 20-day moving average, earlier falling 1.2% the time aft the announcement. The terms closed successful the mediate portion depicted by the method studies connected this chart.

The studies are formed by 20-day Keltner Channel indicators. These picture terms levels that correspond a aggregate of the Average True Range (ATR) for the stock. This array helps to item the mode the terms has fallen from the utmost scope to the mediate range. This terms move from AAPL shares implies that investors are not assured successful Apple's stock terms going forward.

Tip

The Average True Range (ATR) has go a modular instrumentality for depicting humanities volatility implicit time. The emblematic mean magnitude of clip utilized successful its calculation is 10 to 20 clip periods, which includes 2 to 4 weeks of trading connected a regular chart.

Chart watchers tin admit that traders were expressing optimism going into earnings, based connected the terms inclination for AAPL remaining adjacent the apical scope the week earlier the announcement. Chart watchers tin besides signifier an sentiment of capitalist expectations by paying attraction to enactment trading details. Prior to the announcement, traders appeared to beryllium expecting that AAPL would determination upwards aft earnings.

Tip

The Keltner Channel indicator displays a acceptable of semi-parallel lines based connected a 20-day simple moving average and an precocious and little line. Because the precocious lines are drawn by adding a aggregate of ATR to the mean and the little lines are drawn by subtracting a aggregate of ATR from the mean price, past this transmission indicator makes for an fantabulous visualization instrumentality erstwhile charting humanities volatility.

Trading Activity

The caller enactment of enactment traders implies that they see AAPL shares overvalued and person purchased enactment options arsenic a stake that the banal volition adjacent wrong the container depicted successful the illustration betwixt contiguous and Aug. 20, the adjacent monthly expiration date for options. The red-framed container represents the pricing that the enactment enactment sellers are offering. It implies a 70% accidental that Apple shares volition adjacent wrong this scope oregon little by Aug. 20. So sellers are lone mildly bearish. However, buyers are snapping up this pricing, suggesting that buyers see these options underpriced. Since the pricing implies lone a 30% accidental that prices could adjacent beneath this reddish box, it appears that buyers are consenting to instrumentality those agelong odds.

It is important to enactment that unfastened involvement connected Friday featured implicit 5.3 cardinal telephone options compared to implicit 4 cardinal enactment options, demonstrating the bias that enactment buyers had, arsenic traders favored calls implicit puts. This usually implies that enactment traders expect upwards terms movement. After earnings, the volatility has decreased dramatically, but the fig of enactment options successful the unfastened involvement remains elevated, and the fig of telephone options is increasing. Implied volatility for telephone options has been dropping, indicating that, though the fig of telephone options traded has increased, they are being sold, alternatively than bought.

For the strikes at the money and 1 measurement either direction, the enactment unfastened involvement acold outweighs the telephone unfastened interest. Out-of-the-money enactment enactment measurement declines astatine a overmuch slower complaint than out-of-the-money telephone volume, signifying that much traders judge that AAPL stock prices volition autumn than those who judge stock prices volition rise.

The purple lines connected the illustration are generated by a 10-day Keltner Channel survey acceptable astatine 4 times the ATR. This measurement tends to make highly correlated regions of beardown support and resistance successful the terms action. These regions amusement up erstwhile the transmission lines marque a noticeable crook wrong the erstwhile 3 months.

The levels that the turns people are annotated successful the illustration below. What is notable successful this illustration is that the telephone and enactment pricing are successful specified a adjacent scope with plentifulness of abstraction to tally lower. This suggests that enactment buyers judge determination is simply a greater probability for the stock terms to determination little successful the weeks pursuing the report. Although investors and enactment traders expected affirmative question from the report, the stock terms moved a larger region than it did aft the past net report.

These enactment and absorption levels amusement a ample scope of enactment and absorption for prices. As a result, it is imaginable that determination could beryllium a ample determination successful either absorption successful the adjacent future. After the erstwhile net announcement, AAPL shares fell little than 1% successful the time pursuing and continued to autumn the pursuing week. Investors whitethorn beryllium expecting the aforesaid benignant of determination successful terms successful the week aft this announcement. With tons of country successful the volatility range, stock prices could emergence oregon autumn much than expected successful the adjacent term; however, determination is much country successful the volatility scope to enactment a determination to the downside.

Wrapping Up

Apple annihilated analysts' EPS and gross expectations. However, aft Apple executives warned that planetary spot proviso constraints could impact merchandise proviso successful the adjacent quarter, the stock terms fell. Investors reassessed their investments and sold shares of the institution successful the days pursuing the announcement.

Option traders look to beryllium selling calls and buying puts, expressing a bearish outlook. The stock terms enactment provides much country successful the volatility scope for a downward determination successful the stock terms going forward.

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