Timing of Apple earnings has some options traders nursing losses

“A later-than-expected earnings report date for Apple Inc. has some options traders nursing losses Wednesday,” Kaitlyn Kiernan reports for The Wall Street Journal.

“Apple said Tuesday that it would report its fiscal first-quarter results after the close of trading on Jan. 27, four days later than some brokerage and stock-data sources had predicted,” Kiernan reports. “While that difference is relatively small, it spans two different stock-option expiration dates.”

“As a result, the prices of some Apple contracts were collapsing Wednesday as the ‘earnings premium’ — extra cost priced into the options to account for the heightened risk of price swings — was factored out,” Kiernan reports. “On Wednesday, Apple’s implied volatility, a measure of investor expectations for future stock swings and a key component of an option’s price, was trading broadly lower.”

Read more in the full article here.


    1. Since the current options period no longer contains the date on which Apple will report quarterly earnings, the anticipated volatility in the stock price associated with these options has decreased. Since the value of options (gain or loss) is driven by changes in stock price, lower volatility means less uncertainty. Thus these options, which are used for hedging as well as speculation, have lost value. I wish that I had purchased options for the next expiration period – I imagine that their value quickly jumped up when the “implied volatility” of AAPL was transferred to them.

    1. No, I don’t believe that it would make any difference. Theoretically, the price of AAPL would decrease by a factor of ten and the market cap of Apple would remain essentially the same. In actuality, the “lower” stock price resulting from the split might encourage greater participation by individual investors which could boost the price of AAPL somewhat. Regardless, the prices of AAPL-related investment products would adjust appropriately and there would be little to no effect on investment practices.

      As long as there is money to be made from “nonsense and manipulation” in the stock market, you can bet that there will be greedy people willing to pursue it.

  1. I was an options trader for 20 years. All options expire on a given date. When there is an event that will likely mean the underlying stock will move one way or the other, options trading during that event trade at a higher price (implied volatility) than they would otherwise. In the case of AAPL, the premiums can be huge, as the stock can move $15 or 20 very easily.

    So when the date was announced, the options lost their premium and anyone owning them got smoked, while anyone short had a nice payday.

    The carnage in the out-of-the-money puts (options to sell the stock at a price lower than the current price of AAPL) was especially brutal.

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