* Apple options Friday suggest about 7.5 pct earnings move
* Volatility increased as Apple stock declined
* Apple reports fiscal second quarter results Tuesday
By Angela Moon and Doris Frankel
NEW YORK/CHICAGO, April 21 For years, Apple Inc
was a stock investor's dream regardless of the market
environment. But now concern about the iPhone maker's growth has
made many investors wary about a big share swing after its
earnings are released on Tuesday.
Options pricing on Friday suggested a post-earnings move of
about 7.5 percent by April 26. That is far more than in the past
and reflects the fact that Apple stock has become more volatile.
The company, once the world's largest by market value, saw
its shares close below $400 on Thursday for the first time since
December 2011. It has shed nearly $300 billion in market value
since peaking at $705.07 a share in September.
"Being a bear on Apple used to be a lonely position. The
tables have turned," said Enis Taner, global macro editor at
options research firm RiskReversal.com in New York.
A 7.5 percent swing for Apple would be the fourth largest
one-day post-earnings move in the last five years, according to
research firm Birinyi Associates. That could take shares as high
as $419.20 or as low as $360.80, based on the weekly $390
"straddle" expiring on April 26, which cost $29.20 on Friday.
Traders use prices on the straddle to estimate the market's
view of the potential range of a stock going into an event such
as earnings. A straddle combines the purchase of a call option
and put option with the same strike price and expiration date.
A move of 7.5 percent would exceed the average move in Apple
after its earnings, which in the last eight quarters has been
5.4 percent. Apple's biggest post-earnings swing was a 12.4
percent drop on Jan. 23 of this year.
Apple is expected to report an 8 percent increase in
quarterly revenue, among the weakest displays of quarterly
growth in years, according to estimates. Earnings per share are
expected to fall 18 percent as Samsung Electronics Co Ltd
and other rivals erode market share for phones and
tablets and put downward pressure on margins.
Because the stock was such a stalwart, investors for years
knew it was difficult to go against the crowd. Between July 2009
and November 2012, short interest - the percentage of shares
borrowed by investors who "short," or bet against, the stock -
on Apple never exceeded two percent of the company's shares
outstanding. At the current 2.1 percent, Apple's short interest
is still lower than 55 percent of U.S. companies, according to
Thomson Reuters Starmine.
Expectations of how much the stock is likely to move in
coming weeks have also increased. Apple options show implied
volatility for the next 30 days was 43.5 percent on Friday,
according to data from options analytics firm Livevol.
That implies about a 4 percent move in the stock in either
direction in the next month, said Livevol managing director
Historic volatility for Apple for the 30-day period over the
past year was about 34 percent. It has been rising over the past
Many analysts still expect the stock to rebound because of
still-strong demand for Apple's products. But there are many
institutions that own shares bought at higher prices and they
might remain a source of selling pressure if buyers surface,
said Phil Erlanger, president of institutional research firm
Phil Erlanger Research in Acton, Massachusetts.
"The problem for Apple is that those that have hung onto
their shares after September will represent significant supply,
which tends to squash any short-term advance," Erlanger said.
Apple is currently trading at nine times trailing earnings
and 45 of 58 analysts polled by Reuters give the stock a "strong
buy" or "buy" rating. According to Thomson Reuters Starmine,
Apple's intrinsic value - a price target based on expected
growth rates over the next decade - was about $565 a share.
The stock closed 0.4 percent lower on Friday at $390.53.