Options market sees big move in Apple shares after earnings

Wed Jan 23, 2013 3:00pm EST
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By Angela Moon and Doris Frankel

NEW YORK/CHICAGO (Reuters) - The options market is bracing for a big move in Apple shares after it posts earnings on Wednesday amid what has been a dramatic plunge for the world's most valuable publicly traded company.

Apple Inc shares were trading at $512 on Tuesday, down sharply from $702.10 in September, on worries that its mobile devices are no longer as popular.

Based on options activity just hours before the announcement, due after the market close, traders were estimating about a 7 percent one-day move after the earnings, which would be a much more volatile outcome than normal for Apple. Such a move could push the shares as low as $465 or as high as $535, depending on how earnings come out.

"Three ingredients make this earnings for Apple especially appetizing for options traders: (CEO) Tim Cook has missed earnings estimates 60 percent of the time over the past five quarters, the stock has crashed almost 30 percent since September, and no stock has as many hedge funds owning it," said Gareth Feighery, a founder of options education firm Markettamer.com in Philadelphia.

"Combine those three factors together and Apple is a fireworks display ready to ignite, which makes it no surprise to see its options building in a move of close to 7 percent post-earnings."

In the previous eight quarters, the average one-day earnings move has been 3.9 percent, according to RiskReversal.com, an options research firm based in New York.

As competition intensifies from Samsung Electronics Co Ltd and others using Google Inc's Android software, investors are wondering if Apple's days of hyper growth are over.

Despite the sharp decline in recent months that cost Apple nearly $190 billion in market capitalization - about equal to the entire value of AT&T - plenty of Apple bulls remain on Wall Street, with about four-fifths of the nearly 60 analysts covering the company rating it "buy" or "strong buy," according to Thomson Reuters data.   Continued...

The Apple logo is shown on the front of the company's flagship retail store in San Francisco, California January 23, 2013. REUTERS/Robert Galbraith