Investors brace for more stock volatility on Apple earnings

Sun Apr 21, 2013 7:11am EDT
 
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By Angela Moon and Doris Frankel

NEW YORK/CHICAGO (Reuters) - 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 January 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.   Continued...

 
Staff at an Apple store hold a meeting before they open their doors on the day the iPhone 5 went on sale to the public, in central Sydney September 21, 2012. REUTERS/Tim Wimborne