Apple, despite setting a record high to start the year, has shed 12% since the start of 2022, as investors appear to be rotating out of the technology sector for the time being.
The implied volatility built into those prices suggest that traders are selling calls and buying puts, representing speculative downside bets on the Apple earnings results.
As inflationary worries persist, investors could be concerned that the company provides less opportunity for upside growth in the near term.
A comparison between technical analysis of share price movement and recent option trading activity can grant chart watchers valuable insight into the overall sentiment toward Apple stock ahead of the earnings announcement.
The Apple share price rose to an extreme high of the volatility range, marked by the purple bands, and set a record high of $182.94 in early January 2022.
The purple bands on this chart are an extreme historical volatility range formed by 4 standard deviations of 20-day Keltner Channel indicators, which depict price levels that represent a multiple of the average true range for Apple stock.
It’s notable that these bands briefly widened in mid-December and appear to be widening yet again as earnings approaches.
The average true range has become a standard tool for depicting historical volatility over time.
The chart above compares the recent performance of Apple with main competitor Microsoft Corporation .
As the top weighted holdings of QQQ by a wide margin, it’s no surprise that the technology index has shed 14% in 2022.
Seeing as Apple and Microsoft account for 22% of the holdings of QQQ and 12% of SPY holdings, this performance gap between Apple and the rest is alarming.
As the Apple share price has remained in a downward trend, it seems that option traders are positioning themselves for the share price to continue to decline in the near term.
This option represents 6% upside to the current share price of Apple stock and is greater than the 5.2% implied move based on at-the-money option straddle pricing.
With elevated premiums ahead of earnings and downside puts remaining more expensive than upside calls, it’s telling that traders are more willing to buy these puts while selling calls.
The green box represents the pricing that call option sellers are offering, and it implies a 35% probability that Apple shares will close inside this range by expiration.
Option traders appear to be taking the opportunity to sell call options ahead of earnings while the option premium is at its highest, while traders are also willing to pay these elevated premium prices to buy downside puts.