Apple Inc. (NASDAQ:AAPL) stock appears to be a good bet at present as the prices of Apple’s options are low, especially when compared with S&P 500 options, believes Goldman Sachs’ options team. The chances of shares making a bigger move than what the market expects currently are high, states the options team.
AAPL: A straddle the best option
For this reason, Goldman strategists Katherine Fogertey and John Marshall recommend purchasing a straddle on the iPhone firm. A straddle refers to a trade that entails purchasing both a bullish and a bearish option to bet for both upside or downside. Placing a simple bet on either a rise or a fall by buying a call or a put is a less expensive strategy.
Options market opinions about Apple appear to be shifting in both ways. FactSet provided data which shows that implied volatility of Apple shares has fallen dramatically in the past few years in comparison with that of the SPDR S&P 500 ETF. Volatility is a measure of expected future moves that is computed from options prices. Even in the recent weeks and days, a fall has been seen in the Apple/S&P volatility disparity.
Apple volatility cheap vs. S&P 500
However, it is not wise to snatch up every Apple Inc. (NASDAQ:AAPL) option available. Stacey Gilbert, Susquehanna’s head of derivative strategy, said it is not necessary for implied volatility in Apple to be cheap, but rather, it is cheap only in relation to volatility expectations for the overall market.
On Friday speaking on CNBC’s Trading Nation, Gilbert said, “The really interesting takeaway is that Apple volatility relative to the S&P 500 looks inexpensive. But you have to sell the S&P 500 volatility against it. … That’s the way that you would zero in on that implied volatility being too cheap.”
At the same time, he cautioned that it would be best for exposure to the outsized S&P 500 be left to professional traders. For people who want to use their own insight to trade Apple, Gilbert suggests buying either a call or a put option. Also they should be OK with the notion that the option they are buying might be moderately priced in comparison with other choices available in the market.
On Monday, Apple Inc. (NASDAQ:AAPL) shares closed up 1.05% at $95.01. Year to date, the stock is down by almost 10%, while in the last year, it is down by over 23%.