NEW YORK (Reuters) - Apple Inc AAPL.O shares were on track Wednesday for their worst day since January just days ahead of the launch of its latest iPhone, with one brokerage warning of a stock downgrade unless its new products show better promise for profit growth.
Shares of the smartphone maker slumped 4 percent - its worst percentage drop since late-January - as Apple faced scrutiny of its security systems after photos of celebrities stored in individual iCloud accounts were leaked online.
The stock lost $3.57 to $99.15, with 94 million shares changing hands, exceeding its 50-day daily moving average of 45.8 million shares traded, and putting it on track for one of its busiest days of the year.
Apple, which hasn’t introduced a new product since the iPad in 2010, is under pressure to push the envelope for consumer electronics devices.
Some industry observers expect the iPhone maker to unveil a version of a smartwatch next week, though it’s unclear how successful Apple will be in bringing wearables into the mainstream market where others like Samsung 005930.KS have failed.
On Wednesday, Pacific Crest Securities analyst Andy Hargreaves said it was time to take profit in Apple ahead of the expected iPhone launch, scheduled for Sept. 9.
“Unless next week’s event details massive incremental profit opportunities, we are likely to downgrade (Apple‘s) rating,” he wrote in a research note.
Other analysts said the stock was also weighed by growing unease over the recent breach of celebrity photos. Apple said the photos leaked online - of celebrities including Oscar winner Jennifer Lawrence and swimsuit model Kate Upton - were done by a targeted hacking of individual iCloud accounts, and not through a breach of Apple systems.
Still, the breach has put Apple’s security in the spotlight days before it is due to launch its highly anticipated iPhone 6.
Apple’s new iPhones will increasingly become repositories of sensitive home and healthcare data, and some expect payments and financial information as well.
In the wake of the recent breach, cybersecurity experts and mobile developers have called out inadequacies in Apple’s and, more generally, cloud-services security. Thousands have taken to Twitter to express their frustrations with the company.
”I was actually surprised that the stock did not go down yesterday,“ Hudson Square Research analyst Daniel Ernst said. ”While Apple is correct, its systems itself weren’t hacked; that’s hard to get across to the average consumer.”
Still, even with the stock’s drop, activity in the options market points to bullishness ahead of the iPhone launch.
Options volumes are currently 10 percent higher than normal.
The last two weeks saw bullish call bets outnumbering bearish puts by a ratio of about 7 to 3, according to Credit Suisse data.
Despite the selloff, calls led puts by nearly two to one on Wednesday, Henry Schwartz, president of options analytics firm Trade Alert, said.
“Despite the recent events, I am still very bullish on Apple as they have a number of new products coming out such as wearables and a new bigger iPad,” said Naeem Aslam, chief market analyst at Dublin, Ireland-based Ava Trade.
Apple straddles that expire Sept. 19 are pricing in a 3.9 percent move in either direction by that date, said Ed Tom, managing director of equity derivatives trading strategy team at Credit Suisse in New York.
About 31,000 calls at the $104 strike and about 62,000 calls at the $107 strike, both expiring on Sept. 12, traded on Wednesday, said Brian Overby, senior options analyst at online brokerage TradeKing in Charlotte, North Carolina.
“That was a bullish trade and it is the closest expiration (following the Apple event),” Overby said.
Editing by Bernadette Baum