The options market is suggesting that AAPL’s share price will swing by more than 6% after the company announces its earnings for fiscal Q4 (calendar Q3) on Thursday …
Options are where someone enters into a deal which gives them the right – but not the obligation – to buy a particular stock for a pre-agreed price on a specific date. They pay a fee in return for this right. Options are effectively a safer bet than futures, which oblige you to complete the transaction.
By analysing the options people are buying, you can see what the market expects to happen to a particular stock.
In this case, the information lacks one crucial fact, notes the WSJ: whether investors expect the share price to rise or fall.
The trend in US stocks this month has been downward, with AAPL getting caught up in the slide which began with tech stocks but dragged down the entire market.
The estimates don’t indicate which direction shares might sway, just the magnitude of the move. The percentages are derived from an options trade known as a straddle, which entails buying both bullish and bearish contracts that can be exercised at the same price for the stock.
It’s not just AAPL where investors expect volatility – the same is true of Facebook, which reports its own earnings tomorrow.
Apple’s guidance calls for revenue between $60B and $62B.
Facebook investors have already suffered this year as multiple controversies and fears over slowing growth have dogged the company. Its shares have slumped almost 20% in 2018, on track for their first down year ever.
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