Apple Inc. (AAPL) Earnings Date Caught Option Traders Off Guard

Apple Inc. (AAPL) Earnings Date Caught Option Traders Off Guard
ElisaRiva / Pixabay

Apple Inc. (NASDAQ:AAPL)’s deviation from its expected earnings report release date has taken a toll on some of the option traders, says a report from the Wall Street Journal by Kaitlyn Kiernan. The iPhone maker announced that it would discuss its financial performance on January 27th after the trading session closes, which was four days later than some brokerage and stock data sources were anticipating.

Investors caught off guard by Apple earnings date

Though the difference between the prediction and the actual date of the result is not much, it covers two different stock expiration dates. Some Apple Inc. (NASDAQ:AAPL) contracts will expire on Wednesday as the ‘earnings premium,’ – an extra cost priced into the options to account for the heightened risk of price swings – was factored out.

Baupost’s Seth Klarman Suggests That The U.S. Could Be Uninvestable One Day

Seth KlarmanIn his 2021 year-end letter, Baupost's Seth Klarman looked at the year in review and how COVID-19 swept through every part of our lives. He blamed much of the ills of the pandemic on those who choose not to get vaccinated while also expressing a dislike for the social division COVID-19 has caused. Q4 2021 Read More

According to William Lefkowitz, who is an options strategist at asset management and brokerage firm National Securities, “A lot of different websites that were projecting the earnings date were wrong, so a lot of people might have got caught off guard.”

Yesterday, implied volatility for Apple’s stock was trading broadly lower. Implied volatility, an important component of an option’s price, measures investor’s expectations for future stock swings.

Effects on volatility

However, one option contract, January 24 weeklies received a bitter blow compared to others. Volatility caused by January 24 declined 1 point, or about 4.2%, according to options data firm Live Vol Inc. January 31 contract volatility, which incorporates Apple’s next earning report dropped just 0.2 point, or around 0.6% as per the data. Until Wednesday, the contracts expiring on January 24 had a higher level of uncertainty as investors expected Apple to report earnings before that date.

Options, which give the right to sell shares at 10% below Tuesday price, were highly affected by the decline in volatility.  The price of January 31 weekly put options, which also incorporate the stock through financial reports, declined 18% as Apple Inc. (NASDAQ:AAPL) shares surged. However, there was a decline of 54% in price of the same contract expiring a week earlier due to the removal of earnings-related price movement risk.

Apple surged 0.8% on Wednesday, compensating for the loss in implied volatility for traders, who were trading in bullish options including earnings. Contracts allowing traders the right to buy the shares 10% above the Tuesday closing price through January 24 tumbled just 5.2% Wednesday while the contract expiring a week later saw an increase in their price by 7.9%.

Updated on

No posts to display