Puts on Apple Inc. (NASDAQ:AAPL) stock that pay out should the fail have reached a ten month price high according to Businessweek. The company has been fighting off criticism since the launch of its iPhone 5 smart phone. The new operating system released with the phone contained mapping software with several flaws.

Apple

Despite assertions that October could be the best month ever for the company’s stock, the backlash from the firm’s mapping problems have caused huge issues. Puts on the stock are weighing heavily against the company, conspicuously, on the anniversary of the death of Steve Jobs. Tim Cook has his work cut out for him.

According to the Business Week article, Puts that pay should Apple Inc. (NASDAQ:AAPL) lose ten percent are 7.9 points more expensive than calls betting the company’s stock will gain ten percent. Apple’s stock has been fairly unpredictable in the last six months, making these sorts of bets very risky.

The actual ratio of  average put volume to call volume between the release of the iPhone 5 and October 1 was 0.73 to 1. Last week that ratio had moved to 0.74 to 1.

Investors obviously feel dangerously exposed to the Cupertino company. Apple’s huge presence on the S&P500, Business Week reports it accounted for 14% of the index’s entire growth in 2012, means that a collapse in Apple could bring the entire house of cards down.

Companies that are highly invested in Apple stock, and it is the most widely owned equity among hedge funds, are attempting to hedge those bets with puts on the stock. If Apple Inc. (NASDAQ:AAPL) share go through a sustained correction, it will likely pull the wider market sharply, puts on the company will not be enough of a buffer.

The next two big price movers for Apple Inc. (NASDAQ:AAPL) shares will be the launch of the iPad mini, if it is indeed coming at all, and the release of its quarterly report at the end of this month. Right now analysts and investors appear to looking past the first of these, and on to the second.

Expectations have been shaken in recent days. According to reports Apple has sold fewer iPhones that Wall Street had anticipated. If the company were to surprise analysts and announce massive sales it would not be the first time, though indications from the last quarter, when the company came in below projections, have shaken faith in an Apple Inc, (NASDAQ:AAPL) blowout.

Bearish puts on Apple may seem like a poor bet at this point in time, but the company’s unusual position makes it justifiable. Apple stock has still got a surprisingly low multiple, one that implies little growth when almost all of the analysts predict growth.

The reason for this is probably the firm’s position as the world’s most valuable company, and the nervousness of exploring the frontier. Apple shares may well drop 10% if the company has a second major failure in the next month, but it would be reactionary rather based on fundamentals.

The market is of course reactionary in nature, and any seeking to get ahead of a perceived stampede will sell their stock. Those wishing to cushion themselves will hold it and buy puts on the stock.

Apple Inc. (NASDAQ:AAPL) shares have been resilient despite the massive growth in their price. The company has shown strong fundamentals and investors are holding to the company because of this. There may be a bubble in the tech market, but Apple is certainly not overpriced.

Investors are worried about the stock, and periodically tend to do so. This stumble is probably temporary. Investor might entertain the idea of waiting for something more significant before betting against the Cupertino company’s gains.

 

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