Apple Bears Depart as Jobs Sends Puts to One-Year Low: Options
Prices to insure Apple Inc. (AAPL) shares from losses dropped to a one-year low after Steve Jobs, who presided over a 91-fold increase in the stock, stepped down as chief executive officer.
Instead of increasing equity swings, Apple shares are almost unchanged since Aug. 24 when Jobs, who turned the company into the world’s biggest by market value, said he resigned. Implied volatility for three-month options at the current stock price fell to 1.07 times the level of historic volatility, down from this year’s peak of 1.9 in February. Options usually rise when moves in the underlying security increase.
Reduced costs for puts, or bearish bets, show the prospect of Apple without Jobs as CEO isn’t shaking options traders as investors focus on earnings and as analysts project record profits. Before, stockholders were concentrating on the health of Jobs, who founded the company in 1976 and was diagnosed with a rare form of cancer in 2003.
“Apple is a company-specific story right now,” Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $350 billion, said in a telephone interview. “Regardless of any wave of pessimism that washes over the market, investors will look at Apple’s destiny independently. Apple’s been a good story that’s only getting better at this stage, despite Steve Jobs’s departure.”
Steve Dowling, a spokesman for the Cupertino, California- based company, declined to comment.
Beating the Industry
Apple shares advanced 1 percent to $379.74 through yesterday since Jobs quit, giving the company a market value of $352.1 billion. Exxon Mobil Corp. was the second-largest corporation at $345.9 billion, data compiled by Bloomberg show. Apple rose 1.1 percent to $383.93 as of 4 p.m. in New York.
Shares of the maker of the iPod, iPhone and iPad gained 18 percent this year through yesterday, compared with a loss of 7.1 percent for technology companies in the Standard & Poor’s 500 Index. Tim Cook, the company’s former chief operating officer who had been running day-to-day operations, succeeded Jobs, who became chairman.
The stock’s implied volatility has dropped 14 percent to 35.72 yesterday from this year’s peak of 41.71 on Aug. 8, data compiled by Bloomberg show. Sixty-day historical volatility has risen to 33.36, the highest since July 30, 2010, the data show.
“The uncertainty hanging over the stock is removed,” Jack Ablin, who helps oversee $60 billion as chief investment officer for Chicago-based Harris Private Bank, said in a telephone interview. “The best that Apple can hope for is more of the same.”
The benchmark index for U.S. stock options snapped a three- day streak of gains. The VIX, as the Chicago Board Options Exchange Volatility Index is known, dropped 9.8 percent to 33.38. The index measures the cost of using options as insurance against declines in the S&P 500, which rose 2.9 percent.
No matter how cheap its options, Apple’s profit growth will slow and the shares will fall should the U.S. enter a recession, said Ryan Baird, an options trader and partner at Flotilla Partners Inc., a San Francisco-based proprietary trading firm.
The stock lost 57 percent in 2008. The world’s largest economy shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, the most during any recession since the 1930s, according to the U.S. Department of Commerce.
‘To the Woodshed’
“If the consumer dies, Apple could definitely break down,” Baird said in a telephone interview. “The bull case is that it’s probably going to go down less than its competitors, but if the market gets hit, Apple is going to get hit, too. In the financial crisis, we saw it get taken to the woodshed.”
American employers added no jobs in August, the Labor Department said last week, and the Conference Board’s consumer- confidence gauge fell to the lowest level since April 2009. U.S. gross domestic product will probably expand 1.8 percent in 2011, according to the median forecast of 56 economists in a Bloomberg survey. That’s down from an estimate of 3.1 percent in January.
Apple said iPhone sales rose 142 percent from a year earlier to 20.3 million in the quarter ended June 25, while the number of iPads sold climbed 183 percent to 9.25 million. The company will account for 74 percent of tablet shipments this year as they rise to 60 million units in 2011 from 17.4 million in 2010, according to an Aug. 24 report from IHS Inc.’s iSuppli, a research firm in El Segundo, California.
“Apple is not a company that’s going to come out and set a bad forecast or guide lower,” Andrew Keene, an independent trader at the Chicago Board Options Exchange, said in a telephone interview. “They don’t have anything that can make the stock gap down.”
Analysts project that the company will post 2011 profit of $27.50 a share excluding some items, according to the average of 46 estimates in a Bloomberg survey. That would be the most since at least 1999. It has topped the average income projection for 26 straight quarters, according to data compiled by Bloomberg.
Apple’s board ousted Jobs in 1985 amid differences over strategy. He returned as interim CEO in 1997 to save the company from bankruptcy, introducing the translucent iMac computer in 1998, the iPod digital music player in 2001, the iPhone in 2007 and the iPad tablet computer last year.
The iPhone has become Apple’s best-selling product. Buyers snapped up almost 40 million last year, accounting for 38.6 percent of Apple’s $65.2 billion of sales in 2010.
Hewlett-Packard Co. surrendered in its bid to compete in the tablet market against Apple. The world’s largest computer company said Aug. 31 that would produce a final run of its TouchPad. After announcing plans to stop making the device, HP cut its price to $99 from $499, a fifth the cost of the cheapest iPad. The final batch will be available in the fiscal fourth quarter, which ends Oct. 31.
Option prices for Apple are inexpensive relative to other technology companies. Three-month implied volatility for at-the- money options fell to the lowest in more than a year on Aug. 31 relative to the Technology Select Sector SPDR Fund. (XLK)
JPMorgan Chase & Co. recommended buying Apple’s December $395 calls while selling December $345 puts and December $430 calls last week, a strategy that profits most if the shares close above $430 at expiration. The New York-based firm, which rates Apple an “overweight” with a 12-month price estimate of $525, said Jobs’s resignation creates an “attractive” entry point, according to a report.
“Apple always seems to be the one resilient company and it’s because of their innovation,” said Brian Overby, an options analyst at TradeKing Inc. in Charlotte, North Carolina. “It’s always coming up with innovative new products. It’s a neat and flashy company -- and people just like Apple.”