By Andrew Giovinazzi
The market is starting to pick up some good feelings again. The Sturm and Drang playing out in the capital is pretty impressive. Emotions in the market are starting to dissipate. I think there has been some heavy tax selling of big names from investors trying to manage their 2012 tax bills.
The "bird in the hand" axiom was showing itself in many names across the board, as investors have been taking profits. I don't blame them. That also leaves some interesting opportunities for some great names. First let's look at market volatility.
The big-name measure of volatility is the VIX. That index is roughly a weighted average of implied volatilities in the S&P 500 (SPX) that tries to maintain constant 30-day duration. The VIX is looking at Jan. 12, 2013, right now. The VIX closed 15.57 and looks softer this morning. The thing, though, is the 10-day realized volatility of the SPX is only 5.9%. The market is predicting movement roughly 3 times the current movement sometime in mid January.
Now let's contrast this with the movement lately in Apple /zigman2/quotes/202934861/composite AAPL +1.98% . AAPL has its own VIX; Did you know that? The symbol is , and it is maintained by the CBOE. The closing level for the VXAPL was 38.77 and just down from over 45 last week. The 45 number just prior to, but outside of an earnings cycle, is very high for AAPL. In fact, it is some of the highest non-earning volatility for 2012 in the stock.
The big drop this week is, I think, a turning point in the tax-motivated volatility. The 10-day realized volatility for Apple is 40.12. The implied volatility is starting to signal a slow down for the name finally.
The good thing about options is that trades can control some entry points. Normally, Apple IV one month before earnings would be trading in the mid- to low-20 ranges. IV is in the high 30s for the out of the money puts. This is a decent opportunity to step in and sell some put spreads. The fiscal cliff worries are providing some opportunities to step in.
In my opinion, the right strikes for short put spreads are 515 and below in the December ordinary cycle. The ideal would be selling a 515/510 for .75 or better. To approach this, what I would do is cut my normal allocation into three parts since Apple is still moving. This should allow me to get a decent average price.