I’ve been watching Put/Call ratios for a bit.

As AAPL has crossed different points (ie., earnings) the ratio of Puts to Calls has dropped dramatically, only to rise again as AAPL continues its march upwards.  I’m of the belief that holders of Puts are investing in line with historical post January earnings trends, and not looking at the fundamentals of Apple.  This is going to burn them again at Feb expiry.  After that I don’t see much in the way of Puts until April earnings run up comes into play (mid March?).  This should prove beneficial to the longs (no downside pressure from Max Pain theorists), if Apple’s fundamentals weren’t enough to push AAPL upward.

Who will the put holders be burned by specifically?  Fundamentals are strong and never been stronger, but don’t they have the possibility of no iPad 3 in March on their side?  If Jim Dalrymple’s sources are correct, this will be the first time an iPad announcement hasn’t been made by February.

EDIT:  I was off by a few days.  As Gregg said, the actual event for iPad 2 was March 2.  It was the media invite that came out in February.

The one thing that messes up whatever conclusions I try to draw from put/call data…  Credit spreads.  You can have bullish positions on the put side with spreads…  And bearish positions on the call side with spreads…

I’m not quite sure how to reconcile that part…

Mav - 05 February 2012 03:19 PM

Who will the put holders be burned by specifically?  Fundamentals are strong and never been stronger, but don’t they have the possibility of no iPad 3 in March on their side?  If Jim Dalrymple’s sources are correct, this will be the first time an iPad announcement hasn’t been made by February.

Where do you think we will be with no iPad 3 Mav? In the 6-8 million range? 10 million? Those numbers would still be a big improvement over the 2011 March Quarter, so maybe not such a worry? From a marketshare perspective, I’m confident even if we don’t see an iPad 3 this quarter, the iPad will actually increase marketshare due to the fact that no one is buying any other type of tablet at the moment (because they are waiting for iPad 3, and gift giving season budget kindle fires is over).

I wonder if apple had a bit more ipad inventory than anticipated at the end of Q1, so are pushing out the release of iPad 3 slightly to clear inventory. Even though the kindle fire likely only had a small effect on iPad sales, even if it was only a million unit sales lost, then it still might have left a couple of extra weeks worth to sell in the channel.

That wouldn’t be such a terrible thing, as long as iPad 3 still landed before the end of march. Right at this very moment, Apple will be producing all the iPad 3 units it can for launch, and an extra week or two of production will enable a much bigger launch week number….right?

Here’s another scenario: apple releases at start of Q3, but announces before end of Q2 - apple announces huge launch week numbers for iPad 3 before April earnings, everyone on wall street will be in a good mood, knowing to expect low Q2 iPad sales with a gigantic Q3 number to follow. Then Q4 will have strong educational sales, and Q12013 will be another massive Xmas season.

Releasing in very late Q1 or in Q2 also decreases buyers remorse for all those that got one in December for Xmas. Give someone a full 3 months with the latest and greatest gadget, rather than out dating it in just a month or two after receiving it - that I presume would improve the already very high user satisfaction ratings.

Burgess, it’s not a bearish comment really.  I’m just talking near term.

My current (early, more conservative) estimate a little under 10 million iPads sold in fiscal Q2 and EPS around $11.50, and I’m not accounting for any iPad 3 sales.  I think we’re due for a very strong quarter.  But the 15 multiple will be harder to achieve without the iPad 3 (probably with Siri) effect.  There’s a large group out there that seems to think that Apple is on the ropes in either smartphones or tablets when almost a year has gone by without a new product.

lovemyipad - 05 February 2012 03:33 PM

The one thing that messes up whatever conclusions I try to draw from put/call data…  Credit spreads.  You can have bullish positions on the put side with spreads…  And bearish positions on the call side with spreads…

I’m not quite sure how to reconcile that part…

I’ve answered this question years ago.  Relevancy of Put/Call ratio has decreased significantly with the increased sophistication of option traders.  Long ago, bears buy puts, bulls buy calls, so put/call ratio is a good indicator of bullish/bearish sentiments.  Now, bulls can long calls, long call spreads, sell puts and long credit put spread and bears can long puts, long put spreads, short calls and short call spreads.  Put/call ratio is equaled to the total number of open puts over total number of open calls.  We can’t conclude that folks are bearish because put/call ratio has increased since the increase could be due to more puts open due to selling puts and bullish put spread.

Mav - 05 February 2012 03:19 PM

Who will the put holders be burned by specifically?  Fundamentals are strong and never been stronger, but don’t they have the possibility of no iPad 3 in March on their side?  If Jim Dalrymple’s sources are correct, this will be the first time an iPad announcement hasn’t been made by February.

An iPad announcement isn’t nearly as important as an iPhone announcement (15 million units vs 37 million units).  I have no idea what Darymple is talking about.  There have only been two iPad announcements.  The first/initial announcement was on January 27, 2010.  iPad 2 announcement was on Mar 2, 2011, shipping 9 days later.  I give Darymple no credibility on this issue.

The Put holders will be burned by AAPL failing to drop in price.  AAPL’s fundamentals are driving an extraordinary run up in value, based on expectations of continued rapid growth of its core products.  That expectation comes from Apple’s December results, FQ2 guidance, no credible iPad competitor, research reports that show iPhone surpassing Android in market share for the first time, and Apple surpassing Samsung as world’s largest (by volume) handset manufacturer (prior to China launch of iPhone 4S).

Burgess - 05 February 2012 03:47 PM

Mav - 05 February 2012 03:19 PM

Who will the put holders be burned by specifically?  Fundamentals are strong and never been stronger, but don’t they have the possibility of no iPad 3 in March on their side?  If Jim Dalrymple’s sources are correct, this will be the first time an iPad announcement hasn’t been made by February.

Where do you think we will be with no iPad 3 Mav? In the 6-8 million range? 10 million? Those numbers would still be a big improvement over the 2011 March Quarter, so maybe not such a worry? From a marketshare perspective, I’m confident even if we don’t see an iPad 3 this quarter, the iPad will actually increase marketshare due to the fact that no one is buying any other type of tablet at the moment (because they are waiting for iPad 3, and gift giving season budget kindle fires is over).

I wonder if apple had a bit more ipad inventory than anticipated at the end of Q1, so are pushing out the release of iPad 3 slightly to clear inventory. Even though the kindle fire likely only had a small effect on iPad sales, even if it was only a million unit sales lost, then it still might have left a couple of extra weeks worth to sell in the channel.

That wouldn’t be such a terrible thing, as long as iPad 3 still landed before the end of march. Right at this very moment, Apple will be producing all the iPad 3 units it can for launch, and an extra week or two of production will enable a much bigger launch week number….right?

Here’s another scenario: apple releases at start of Q3, but announces before end of Q2 - apple announces huge launch week numbers for iPad 3 before April earnings, everyone on wall street will be in a good mood, knowing to expect low Q2 iPad sales with a gigantic Q3 number to follow. Then Q4 will have strong educational sales, and Q12013 will be another massive Xmas season.

Releasing in very late Q1 or in Q2 also decreases buyers remorse for all those that got one in December for Xmas. Give someone a full 3 months with the latest and greatest gadget, rather than out dating it in just a month or two after receiving it - that I presume would improve the already very high user satisfaction ratings.

I hope you are cute, I could kiss you.

Mea culpa.  I’ve mixed my media invites with my events.  Please carry on.

Mace - 05 February 2012 04:09 PM

Relevancy of Put/Call ratio has decreased significantly with the increased sophistication of option traders…  Long ago, bears buy puts, bulls buy calls, so put/call ratio is a good indicator of bullish/bearish sentiments.  Now…
We can’t conclude that folks are bearish because put/call ratio has increased since the increase could be due to more puts open due to selling puts and bullish put spread.

Yep.