Options traders are expecting another big move for Apple this month, following the dire earnings warning that sent shock waves across the markets.
Shares of Apple were on the rebound Friday afternoon after the stock stock sank 10 percent on Thursday — its worst daily performance in nearly six years. The sell-off came a day after CEO Tim Cook warned that its first quarter revenue would come up short. The announcement also sparked a surge in options activity, according to Dan Nathan of RiskReversal.com.
“Options volume was two times average daily volume,” Nathan said Thursday on CNBC’s “Fast Money.” “Which is actually on a notional basis quite a lot for a $140 stock.”
After a strong runup into 2018, Apple has sunk into a bear market with the stock now down more than 36 percent from its all-time closing high of $232.07 in October. Nathan points out while the fall has been significant, Apple shares are holding “pretty decent support” around the $135 level.
“It happens to intersect with that long term uptrend so you may see traders trying to position for 135 into that earnings release,” he said.
Apple is scheduled to report first-quarter earnings on Jan. 29. Nathan said Apple is expected to move 10 percent in either direction into those earnings. Although price of options for Apple are trading near multiyear highs, Nathan suggested options traders who are looking to play the implied move should consider “selling a put to the downside to the 135s.”
“If you have the risk tolerance and if you’re thinking about dipping your toe in the water, selling an out-of-the-money put is a good way to do it, especially after a stock like this has declined so much,” he said.
The stock was trading higher on Friday afternoon, above $148.