Apple (AAPL) Option Traders Bearish After Earnings

After Apple Inc. (AAPL) reported that it had demonstrably overwhelmed analysts’ expectations for its fiscal third quarter earnings outcomes, choice merchants are taking actions that indicate they suppose the share worth will drift decrease sooner or later. This will come as no shock contemplating the AAPL share worth fell 1.2% the day after the report was introduced.

Apple reported earnings per share (EPS) of $1.30 and income of $81.41 billion, exceeding analysts’ predictions calling for EPS of $1.01 and income of $73.30 billion. Regardless of the large beat, Apple shares fell after executives warned that chip provide constraints may have an effect on iPhones and iPads this quarter. Previous to the announcement, traders had bid up the share worth, with a large variety of call options within the open interest.

Possibility buying and selling volumes indicated that merchants had been shopping for calls and promoting puts; nevertheless, choice exercise after earnings means that merchants are pessimistic about AAPL’s share worth after the tech large beat analysts’ predictions. That is as a result of the value motion has just lately drifted decrease, whereas choice exercise implies that merchants are promoting calls and shopping for places. 

Evaluating the value motion between choice buying and selling exercise and inventory costs on the times following earnings exhibits some proof to recommend that choice merchants could also be pessimistic. This shouldn’t be stunning contemplating AAPL’s share worth fell 1.2% the day after earnings, closing under its 20-day moving average. Moreover, put choice exercise elevated, whereas name choice exercise decreased. This might occur as a result of choice merchants consider that AAPL is overvalued at present ranges and can development decrease within the close to time period.

Key Takeaways

  • Merchants and traders bought shares in AAPL after the earnings announcement, because the inventory fell 1.2% the day after earnings.
  • The share worth of AAPL closed under its 20-day transferring common.
  • Put and name choice exercise seems to be positioned for the value to fall.
  • The volatility-based assist and resistance ranges permit for a stronger transfer downward than upward.
  • This setup creates a chance for merchants to revenue from a reversal within the earnings-based share worth motion.

Possibility buying and selling represents the actions of traders trying to shield their positions or speculators who want to revenue from accurately predicting sudden motion in an underlying inventory or index. The actions of those traders and speculators indicate a forecast for the weeks forward, as a result of choice buying and selling is a literal guess on market possibilities—a guess made by merchants which might be, on common, higher knowledgeable than most traders. The important thing to making the most of this perception is to know the context wherein the value habits befell. The chart under depicts the value motion for AAPL shares on Friday, July 30, illustrating the setup after the earnings report.

Present Developments

Over the course of the previous month, the development of the inventory noticed AAPL shares transferring in an excessive vary, closing properly above the 20-day transferring common, earlier than falling 1.2% the day after the announcement. The value closed within the center area depicted by the technical research on this chart.

The research are shaped by 20-day Keltner Channel indicators. These depict worth ranges that characterize a a number of of the Average True Range (ATR) for the inventory. This array helps to focus on the way in which the value has fallen from the intense vary to the center vary. This worth transfer from AAPL shares implies that traders are usually not assured in Apple’s share worth going ahead.


The Common True Vary (ATR) has change into a typical device for depicting historic volatility over time. The everyday common size of time utilized in its calculation is 10 to twenty time intervals, which incorporates two to 4 weeks of buying and selling on a every day chart.

Chart watchers can acknowledge that merchants had been expressing optimism going into earnings, based mostly on the value development for AAPL remaining close to the highest vary the week earlier than the announcement. Chart watchers may type an opinion of investor expectations by being attentive to choice buying and selling particulars. Previous to the announcement, merchants gave the impression to be anticipating that AAPL would transfer upwards after earnings.


The Keltner Channel indicator shows a set of semi-parallel traces based mostly on a 20-day simple moving average and an higher and decrease line. As a result of the higher traces are drawn by including a a number of of ATR to the typical and the decrease traces are drawn by subtracting a a number of of ATR from the typical worth, then this channel indicator makes for a superb visualization device when charting historic volatility.

Buying and selling Exercise

The latest exercise of choice merchants implies that they contemplate AAPL shares overvalued and have bought put choices as a guess that the inventory will shut throughout the field depicted within the chart between at the moment and Aug. 20, the subsequent month-to-month expiration date for choices. The red-framed field represents the pricing that the put choice sellers are providing. It implies a 70% likelihood that Apple shares will shut inside this vary or decrease by Aug. 20. So sellers are solely mildly bearish. Nevertheless, consumers are snapping up this pricing, suggesting that consumers contemplate these choices underpriced. For the reason that pricing implies solely a 30% likelihood that costs may shut under this crimson field, it seems that consumers are prepared to take these lengthy odds.

You will need to word that open curiosity on Friday featured over 5.3 million name choices in comparison with over 4 million put choices, demonstrating the bias that choice consumers had, as merchants favored calls over places. This usually implies that choice merchants count on upwards worth motion. After earnings, the volatility has decreased dramatically, however the variety of put choices within the open curiosity stays elevated, and the variety of name choices is growing. Implied volatility for name choices has been dropping, indicating that, though the variety of name choices traded has elevated, they’re being bought, slightly than purchased.

For the strikes at the money and one step both route, the put open curiosity far outweighs the decision open curiosity. Out-of-the-money put choice quantity declines at a a lot slower fee than out-of-the-money name quantity, signifying that extra merchants consider that AAPL share costs will fall than those that consider share costs will rise.

The purple traces on the chart are generated by a 10-day Keltner Channel research set at 4 occasions the ATR. This measure tends to create extremely correlated areas of sturdy support and resistance within the worth motion. These areas present up when the channel traces make a noticeable flip throughout the earlier three months.

The degrees that the turns mark are annotated within the chart under. What’s notable on this chart is that the decision and put pricing are in such a detailed vary with loads of area to run decrease. This means that choice consumers consider there’s a larger chance for the share worth to maneuver decrease within the weeks following the report. Though traders and choice merchants anticipated optimistic motion from the report, the share worth moved a bigger distance than it did after the final earnings report.

These assist and resistance ranges present a wide variety of assist and resistance for costs. In consequence, it’s doable that there may very well be a big transfer in both route within the close to future. After the earlier earnings announcement, AAPL shares fell lower than 1% within the day following and continued to fall the next week. Buyers could also be anticipating the identical form of transfer in worth within the week after this announcement. With numerous room within the volatility vary, share costs may rise or fall greater than anticipated within the close to time period; nevertheless, there may be extra room within the volatility vary to assist a transfer to the draw back.

Wrapping Up

Apple annihilated analysts’ EPS and income expectations. Nevertheless, after Apple executives warned that world chip provide constraints may have an effect on product provide within the subsequent quarter, the share worth fell. Buyers reassessed their investments and bought shares of the corporate within the days following the announcement.

Possibility merchants look like promoting calls and shopping for places, expressing a bearish outlook. The share worth exercise supplies extra room within the volatility vary for a downward transfer within the share worth going ahead. | Apple (AAPL) Possibility Merchants Bearish After Earnings


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