AAPL - Earnings Vol and Skew

Discussion in 'Trading' started by livevol_ophir, Jan 25, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    Note the IV30&#8482 drop today and that earnings are today AMC.

    The Charts Tab snapshots are included in the article from Friday (6 mos) and then for today (6 mos) respectively.

    For the chart from Friday you can see the exploding IV30&#8482 (red line) relative to the HV30&#8482 (blue line). Also note the IV30&#8482 increase last earnings and the subsequent fall with a gap up in stock price.

    The chart from today adds one more data point (today). Note the sell off in vol before earnings.

    IV tends upward into earnings as that one specific day has greater vol than others. IV has a tendency to rise as the market falls as well - so AAPL vol was exploding on two phenomenon - (1) earnings and (2) market drop. You can see the level of IV30&#8482 even after the vol drop today is well above anything over the last 6 months (including another earnings cycle). It seems the vol increase may have been over bought, as AAPL vol is lowering pre-earnings.

    Finally, you can see that AAPL has a pronounced reverse skew - the calls are bid as high as the puts. For a thorough discussion of "normal" skew shape please read this post: <a href="http://livevol.blogspot.com/2010/01/solarfun-solf-call-purchases-with.html">HERE.</a>

    The 3D skew chart (animated) is included in the article.

    Note the highest strike calls and how high the vol is relative to the other months.

    This means Feb calls are expensive relative to March (and others).

    You can read details, see animations, charts and values here:
  2. ?.....Would this earnings report tend to be more volatile or "different" because of Christmas sales compared to other quarters? Are you concerned about something happening similar to Google's April-2008 earnings report?
  3. livevol_ophir

    livevol_ophir ET Sponsor

    I think if I want to buy options in AAPL then at least I will spread it off with some high vol. I am probably doing neither and I def don't offer trade advice...

    The fact that vol is declining pre-earnings means a good deal of the vol increase was due to external market factors. Having said that, of course there is a possibility it moves huge on unexpected news and being back spread would be a winner.