Reward 1000 Tiger-coinsSept. 14 vs. Sept. 13: $Apple(AAPL)$ closed down nearly 6% and rose 3.85% respectively, recording the biggest single day drop since September 2020 and jump since May.
1. Low Beta vs High Beta?
$Apple(AAPL)$ has been a good representative of low beta stocks. In comparison, $Tesla Motors(TSLA)$ has high beta.
- Beta is a way of measuring a stock's volatility compared with the overall market's volatility.
It means Apple tends to fluctuate in a small range in stock market. Thus, a near 6% plunge was particularly rare for Apple.
In previous article, we mentioned that Apple’s single day jump was prompted by the company’s surprising pre-orders. While Apple’s single day plunge can attribute to the depressing and unexpected CPI data.
2. Why does Apple join the high volatility ranks?
Recently, many good news help push $Apple(AAPL)$ 's share higher:
- New product launch
- Positive pre-order data
- Institution’s net flow in Apple
These news also makes investors more confident on $Apple(AAPL)$. However, the coin always has two sides. Institutions and investors buy more Apple because they don't have much choice in this vulnerable market. The historical drop last night may help $Apple(AAPL)$ go back to the normal.
3. Good strategies to cope with high volatility
1) Basic and simple choice
Nanette Abuhoff Jacobson,Investing strategists from Hartford Funds said,
Adjusting the investment portfolio to 50/50
Rate hikes will challenge the stock market over the next 6-12 months. Anyone looking at this investment period should consider reducing the proportion of equities and increasing the weighting in cash, bonds and commodities.
If the market continue to go lower, investors may find a common scenario in recessions: stocks fall and bond markets rise.
Investors can adjust stock/bond ratio of 60/40 to 50/50 and then moving back to 60/40 when the market sells off further.
2) Advanced choice of Options
Straddle and Strangle
- Straddle refers to buying a combination of “call and put” with the same strike price and expiration date, with the strike price usually taken close to the current price (ATM).
The biggest advantage is that it does not judge the direction of the stock movement but only bets on high volatility, which means that the underlying stock needs to be volatile enough so that the return on one side is greater than the cost on both sides.
The risk is that the price of the underlying stock is not volatile enough to offset the cost of buying two options.
- Strangle differs from Straddle in that it buys a combination of “call and put” with different strike prices, but the same expiration date, and the strike price is usually out-of-the-money (OTM).
It allows you to take profit when the price breaks through a certain range (whether up or down). It’s suitable for stocks with very high volatility, typically growth stocks and technology stocks.
Wonder what ticker is suitable for straddle and strangle?
You can click "Options" of your familiar ticker, and click "Bulk Order" to find institutions trading on options.
For example, investors bet on $Alibaba(BABA)$'s volatility and buy the combination of "call and put" at the same expiration date, which is "straddle" as we mentioned above.
What's your opinions towards Apple's opposite move in 2 days?
Do you have good strategies to cope with high volatility?
Share your thoughts in the comment section and win tiger coins~
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