Activity in Apple (AAPL) options were busy on Tuesday ahead of the iPhone maker’s quarterly results, split between investors expecting the stock to recoup recent losses and those looking for protection against a further drop.
The world’s most valuable publicly traded technology company is expected to report quarterly revenue slightly below Wall Street’s average estimates for the first time in six quarters, according to Thomson Reuters StarMine.
Relatively lackluster sales forecasts by some of Apple’s main Asian suppliers have raised the specter of the first annual decline for iPhone sales since the flagship product was launched almost a decade ago.
Apple shares have underperformed the S&P 500 for a year, losing about 11% compared with the S&P’s 8% decline. On Tuesday, shares were nearly flat, while the S&P gained 1%.
Still, traders have not given up on gains. On Monday, Apple’s call options, typically bought by investors who believe a stock will rise in value, outnumbered puts by a 1.6-to-1 margin, slightly more than the recent average.
Typically puts—which are generally used to hedge against a dip—have a higher implied volatility than calls. But on Monday, out-of-the-money calls and puts—that is, options that are not profitable yet—were trading at a similar level of implied volatility.
Generally, puts trade with a higher implied volatility because of greater concern about declines than hopes for gains. The relatively similar volatility expectations is to some an optimistic signal.
“This shows big demand for the calls,” Brian Overby, options analyst at online brokerage TradeKing in Charlotte, N.C., said.
The 30-day implied volatility, a gauge of the risk of large moves in the shares, is not a lot higher than before previous earnings results, said David Hait, president of OptionMetrics in New York.
On Tuesday, the cost of a straddle in Apple’s options, a strategy in which a trader buys an at-the-money put option and a similar call option, implies a move of about 6.4% in either direction by Friday. Over the last eight earnings reports, the average one-day move after reporting is 4.6%.
“The data seem to imply that there’s not any more uncertainty in the upcoming announcement than in any previous ones,” Hait said.
Put options betting on shares falling below $90, about 9% below the current price, were the busiest options on Tuesday, with 50,000 contracts traded.