Apple pre-earnings options volume swells, calls eyed
By Doris Frankel
(Reuters) - A number of options investors showed optimism for iPhone-maker Apple Inc's upcoming earnings by loading up on the stock's bullish options on Tuesday.
But this time the pre-earnings option action is different due to the uncertainty over Apple's Chief Executive Steve Jobs, who is taking medical leave for the third time.
"I think the company has certainly planned for Steve Jobs reducing his workload as CEO for a while now. And traders seem to be looking past this news and are focusing on future growth and earnings potential for the company," said Herb Kurlan, Chief Executive of Vtrader Pro, a San Francisco-based online proprietary trading firm.
After the close of regular trading on Tuesday, Apple is expected to report earnings of $5.40 a share, according to Thomson Reuters I/B/E/S.
Apple shares fell 1.9 percent to $341.90 after the world's largest technology company by market capitalization said on Monday Jobs was taking a medical leave of absence without specifying a return date or detailing his condition.
Most of the options action is in the January call and put contracts which expire after the close on Friday, according to data from option analytics firm Trade Alert. The January $340 and $350 calls are heavily traded as well as the front month $320 and $330 puts.
In all, about 549,000 calls and 341,000 puts changed hands in Apple by 2:52 p.m. EST, or 3.9 times the average daily turnover, according to Trade Alert. Bullish bets appeared to have increased after the stock's early decline, analysts said.
"You are seeing more calls being bought than puts which indicates investors are looking for a positive reaction to the earnings after the close," Kurlan said. "Furthermore, more calls are being purchased on the offer price than being sold on the bid which suggests a positive bias by investors."
"A lot of the option trading is in reaction to what the stock is doing due to the volatility from the news that Steve Jobs was taking a medical leave of absence," said Steve Place, a founder of investingwithoptions.com in Mobile, Alabama.
"Because of that, the options are going to behave a little differently that what we normally see heading into an earnings event," he said.
Place also noted no big directional bets were being placed although the net effect in the options has been bullish and option premiums are being bought.
Judging by the implied volatility of the January $340 straddle, traders are expecting about a 5 percent post-earnings move in either direction in the stock price, Kurlan added.
Option traders estimate earnings moves by looking at the stock's at-the-money straddle, a combination of a call and put with the same strike price and expiration date. A straddle is a volatility play but also an easy way to measure an expected move of a stock ahead of a risk event such as earnings.
"There is still a lot of uncertainty regarding the short term outlook for Apple with the details of the earnings report likely to be a primary driver for the stock price," said WhatsTrading.com options strategist Frederic Ruffy.
(Reporting by Doris Frankel; Editing by Andrew Hay)
Credit: Reuters (www.reuters.com)
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