'Bendgate' boosts Apple implied volatility

Implied volatility is jumping on shares in Apple on Thursday as its shares fall alongside the broader market.

But Apple also has its own homegrown uncertainty thanks to the revelation of bendable iPhones and the hiccup in its latest iOS 8.0.1 software update. Apple is contributing 17-points of the Nasdaq composite’s 70-point decline this morning. At the launch of its iPhone 6 and 6+ shares in Apple reached as low as $97.75, enough to drive implied volatility on its options to 28.4%. Today, however, implied volatility has risen above 30% for the first time since the start of September. The move lower for its shares and rising volatility is driving up the cost of protection in the November options series, which expires after Apple’s end-of-October fourth-quarter earnings release. The Nov $100 strike straddle, which combines the premium on the same strike call and put has jumped to $8.70 from $7.90 overnight. At the time of the product launch two weeks ago that same straddle reached as high as $9.70 while its premium has softened thanks to eroding time and the fact that the shares have since hugged the $100.00 level. The current straddle premium implies that beyond earnings, Apple’s share price may remain hemmed in to a range of $91.30 to $108.70. But, rising implied volatility currently does not suggest option investors feel that range is broad enough to reward them, especially with the entire market suffering on a relatively illiquid day.

 


Chart shows Apple’s November straddle combination is rising as shares fall and volatility finds a bid.

About the Author

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school.