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Apple options became way too pricey ahead of earnings this week, sending traders looking for alternatives.
The big demand for Apple options, both puts and calls, was due to fears of a big stock move post earnings. That pushed implied volatility up to levels that made buying short-dated options too expensive and made instruments like options on the QQQs ETF more appealing.
Media and market speculation built for days ahead of the report, creating an unusually high percentage of Apple options to trade. A lot of the speculation was negative, suggesting Apple could have a big miss.
That demand helped push short term volatility north of 90 percent, driving up premiums that attracted traders willing to sell short-term volatility and manage the risk but making buyers, pause.
About 9.3 percent of all equity options traded on exchanges Monday was in options on shares of Apple.
For example, at-the-money straddles cost about $38.60 on Monday, implying that buyers were anticipating a move of over 6 percent post earnings - anything less 6 percent would have made the strategy a losing proposition. Expectations were for a price move of about 3 percent based on historic norms for Apple according to the research team at Sterne Agee and Leach amongst others.
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