Apple Open Interest Analysis

Elmwood Data's picture

Apple is scheduled to report earnings on Tuesday April 24th.   Our analysis is simply to try and match the enthusiasm of the recent price movement and fundamental story of Apple in relation to what has happened in the options markets.  

Price action for Apple stock over the past few weeks has been noticeably poor.  Not only has it traded down 10% from its April 9th closing high of $636 to $572 today, but it has led the market several times with somewhat dramatic intraday reversals.  Even so, the options market has not yet expressed this same recent bearish opinion on the stock.  

We’ve built a model that shows the option action of Apple.   We matched the stock price of Apple (black line) versus a  weighted combination of the the call-put volume (75% weighting) and the call-put open interest (25% weighting). We chose this breakdown in the belief that short-term volume holds more importance, so consequently should be weighted higher.  Additionally, we changed this custom data series into a 10 day simple moving average (blue line) and 50 day (red line) simple moving average to smooth out the gyrations.


Apple Options Model


In this analysis, we are looking at how far the 10 day SMA is above/below the 50 day SMA What does this show? It shows that 10 day SMA currently sits above the 50 SMA by 28%. Since these data series are positively correlated, a rising 10 day SMA is typically a good sign when looking at the call-put volume and open interest.  It’s when the 10 day SMA spikes dramatically higher or lower relative to the 50 day SMA, is when it can then turn into a contrarian signal.  We would make that case right now, that call buying has spiked too far relative to put buying and therefore left Apple stock vulnerable for a further pull back.  

Viewed another way, the color coded oscillator in the chart shows the standard deviation differential between the 10 and 50 day SMA.  You can see in 2011 that there were two cases where the Std Dev of the differential between the 10 day SMA  to the 50 day SMA was greater than 2.0, and the stock traded down and consolidated for a period of time.   At present, the Std Dev currently is sitting at 1.98, which is elevated to say the least.  When running our scenario analysis tool using the past 5 years of data, we’ve found Apple typically returns -.31% in the first month, +11.66% after three months, +25.76% after 6 months, and +33.21% twelve months later when the 10 day SMA is 28% higher than the 50 day SMA.

The takeaway here is that even though the stock has fallen 10% over the last few weeks and has acted poorly, it doesn’t appear that investors have taken out protection in the options market to hedge against further downside.   In our opinion, this leaves the door open for disappointment in the very short term, but any dip should be bought quickly.  Longer term the options market clearly has a bullish bias and we wouldn’t be surprised to see Apple halt its stock weakness with an upside reversal day very soon.   

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
orangegeek's picture

If you have a look at the NASDAQ100, it issued a warning a full SEVEN days in advance of the Apple top that the trend up was ready to turn.

If market indexes go up, their member stocks tend to go up.  If market indexes go down, their member stocks tend to go down.


Good commentary of Apple price overlayed on NASDAQ100 - hourly chart is compelling.

mkhs's picture


Buy apple?

Gmpx's picture

I am loosing my interest to Apple products. I predict Apple will slide until Steven's comeback.

falak pema's picture

sounds more like the last prophet shine of brilliantine tongue in cheek! 

Gmpx's picture

I can explain why I am loosing my interest in Apple. Nothing can be improved in computer interface unless you start sticking the computer inside your body. You cannot type faster on a touchscreen, you cannot get better convenience than a normal mouse or better drawing than on a tablet. You cannot make better photos and video using a small lens and small batteries cannot provide enough power to digitize the picture (your eyes are fed by thousand of calories - right?). You cannot have more friends on Facebook even if you can type 10 times faster and organize your contacts in 3D. So, there is nothing for Apple to improve. It is time for Apple to watch other manufacturers making the same products for cheaper price.

falak pema's picture

Apple has now gone hegemonical thanks to its I-pod success that launched it into the music niche. Subsequent launches of i-phone and i-pad, were enormous successes. I-pad has been niche marketd NOT to cannibalise its Macpro books which allow full text capability. 

But what Apple is now aiming at is extending into multi-media hegemony by going into closed loop TV and closed loop "domotic" services whereby the home electronic-digital revolution will make it service provider into this new personal eco-system market.

Its a much more ambitious plan than what you refer to; and what is ominous is that it is CLOSED CIRCUIT; in terms of technology. 

It is debatable that a civilization that puts a market value on a company like Apple as #1 on the stock exchange, is barking up the wrong tree. Our major conundrum is basic human needs in this current century : food, water, air, energy; not I-pads. Not paranoid culture of uber-alles profit generation inventions on non essential stuff.