Apple Options Show Earnings Surprises Are Unlikely After Warning

(Bloomberg) -- With Apple Inc. trading more than 30 percent below last October’s record high heading into its earnings report, options investors appear to be unenthused about the pending results, especially after the iPhone maker already warned they’ll fall short of previous estimates.

Options prices imply a 5.4 percent change in the share price following the company’s first-quarter report, due to be released after the close of trading Tuesday. That’s slightly higher than the average move of 4.4 percent following the last eight releases. Among contracts expiring this week, 57 percent fall between strike prices of $145 to $165, with calls slightly outweighing puts.

Apple fell 0.9 percent to $156.30 in New York Monday as sentiment among large-cap technology stocks was hit after Nvidia reduced its revenue outlook for the fourth quarter, citing a slowdown in demand from data centers. Apple’s drop from its October high is more than double the 14 percent decline of the FAANG index over the same time period.

Only about 6 percent of Apple’s total open interest is set to expire on Feb. 1, compared with 8 percent of the total contracts that coincided with the fourth-quarter report in November. The relatively low open interest suggests options traders are staying on the sidelines into the release.

Buying Apple options expiring in tandem with the first-quarter earnings report “does not seem attractive to us given options are pricing in a standard earnings move in the stock despite the pre-announcement at the beginning of the month,” said Enis Taner, equity derivatives strategist at United First Partners.

While open interest expiring Feb. 1 is a relatively small percentage of the total, traders should take note of current implied volatility. At 64 percent, it’s in the 75th percentile versus a three-month average of 40 percent.

To contact the reporter on this story: Gregory Calderone in New York at gcalderone7@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer, Courtney Dentch

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