The Wall Street Journal: Apple’s stock options point to unusual post-earnings volatility

Options traders are gearing up for a much-bigger-than-usual move in Apple’s stock after the technology giant reveals its first-quarter results after Tuesday’s close.

Based on an options strategy known as a straddle, which involves the simultaneous buying of bullish and bearish options that expire at the end of the week, and with strike prices at current levels, Apple’s stock AAPL, -1.50%  is expected to move nearly 7% the day after results, according to data provided by FactSet.

Read more about what is expected from Apple’s earnings.

Meanwhile, over the past 20 fiscal quarters, the stock has moved an average of 4.2% — the median move is 2.7% — the day after results.

Straddles are bets on expected volatility, not on direction, as buyers of straddles can make money whether the stock rises or falls, as long as it moves enough to cover the cost of the straddle.

At current prices — it was down 1.7% at $ 111.13 in midday trade Tuesday — the strategy could pay off if the stock rises above $ 118.83 or falls below $ 103.43.

The size of the expected move might have something to do with how the stock reacted to the last three first-fiscal-quarter reports: It dropped 8% on Jan. 28, 2014; tumbled 12% on Jan. 24, 2013; and rose 6.2% on Jan. 25, 2012. The stock was down 2.2% in midday trade Tuesday

Despite Tuesday’s intraday decline, occurring in the midst of a broad stock-market selloff, Apple’s stock was still up 11% since Apple reported its fourth-quarter results, while the S&P 500 has gained 6.5% over the same time.

Read how one analyst’s chart suggests Apple’s stock may have overshot expectations.


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