Apple Trails Magnificent Seven Peers, Boosting Appeal of Selling Options

$Apple(AAPL)$   is seeing the wildest price swings since January, boosting the appeal of put options as an insurance against a potential sustained downturn for the worst performing Magnificent Seven stock over the past month. 

Implied volatility, which measures the market's expectations of the stock's potential price changes using a set of variables including option premiums, rose to almost 35% Friday, the highest since Jan. 28. IV percentile now sits at 87%, meaning the current volatility is higher than 87% of the trading sessions over the past year. That translates to pricier options, making them more attractive for sellers. 

Apple shares fell Friday amid a wider stock market selloff that was fueled by the latest data showing the biggest job cuts in the U .S. since the pandemic. The jobs data added to investor worries over the impact on global growth from the war on Iran that has already fueled a 34% jump in crude oil futures this week. That surge pushed up U.S. gasoline prices, threatening to further fan inflation.

Risk aversion across the stock market has muted the positive outlook from this week's launch of Apple's latest products including the $599 MacBook Neo and iPhone 17e. The launch highlight the company's ability to manage cost and protect its strong margins despite pressures from rising memory prices, according to one analyst.

"Despite skyrocketing memory chip prices, Apple kept prices constant across Mac and iPad, consistent with the iPhone 17 family," Morningstar analyst William Kerwin wrote in a note Wednesday. "We like Apple absorbing memory prices, and we believe the firm is adept at negotiating a ballooning pricing environment while maintaining a strong margin."

The iPhone maker's 7.8% decline over the past month is more than twice of the pace of losses for the Bloomberg Magnificent Seven index. Only two the seven stocks are up over that period -- $Microsoft(MSFT)$   and $Amazon.com(AMZN)$  , but Apple's drop is worse than the 2.85% slide for $Meta Platforms (META.US)$, 3.5% for $Tesla (TSLA.US)$, 4.38% fall for $NVIDIA (NVDA.US)$, and 7.68% for $Alphabet-A (GOOGL.US)$.

Selling put options have gained popularity among institutional and retail investors who are optimistic that the stock could climb above the strike price of the contracts. Some are even willing to buy the stock in case the contracts end up being exercised by the holder because they're confident that the shares will rebound over the long term. 

An active seller got a $4.29 million premium for issuing put options that give their holder the right to sell 100,000 Apple shares at $300 each in 13 days. That's the largest block trade on Apple options Friday. 

A similar trade has a profit probability of almost 50% for the seller, based on current prices and volatility. The transaction will be profitable for the seller if the stock continues to trade above the breakeven level of $256.675 by the time the contract expires on March 20. If it does, the maximum profit potential could reach $4,332.50 per contract. If the stock breaks below that level, the maximum loss potential for the seller could reach $25,667.50 per contract. Each contract covers 100 shares. 

@TigerStars  @CaptainTiger  @TigerWire  @Daily_Discussion  @Tiger_chat  @Tiger_comments  @MillionaireTiger