Options (AAPL) traders are betting new Apple Inc. products will propel the world’s largest company after it rebounded from the worst monthly loss in a year.
Options on the iPhone maker haven’t been this cheap in more than two years relative to the Technology Select Sector SPDR Fund, according to data compiled by Bloomberg. The stock lost 4.3 percent last quarter, including an 11 percent retreat in January, while the exchange-traded fund advanced 1.7 percent between January and March for a fifth straight gain.
Investors are betting a range of new products this year will sustain a sales boom and help keep the stock afloat, said Andy Perkins, an analyst at Societe Generale SA in London. Apple will introduce a TV set-top box and is negotiating with Time Warner Cable Inc. and other potential partners to add video content, people familiar with the plans said in February. The company also is exploring a smartwatch, people familiar with those plans have said.
“We’re going to see quite a bit of new products,” said Perkins, who recommends holding the stock. “Perhaps we’ll see bigger screen phones, we might see more than one phone launched in the year, or one of these big products that so many people talk about: the iWatch or the iTV.”
Apple faces an increasing threat from companies using open software and gains in its stock may get harder to come by, according to Per Lindberg, a Stockholm-based analyst at ABG Sundal Collier. IPhone shipments increased 13 percent last year, while the broader market rose 41 percent, according to researcher Strategy Analytics. The company’s share of the market fell to 15 percent from 19 percent, while Samsung Electronics Co. captured 32 percent, the research firm said.
“Apple faces fierce competition in the smartphone market,” Lindberg, who recommends selling the stock, said in a phone interview. “Its insular, isolated business model won’t be particularly popular when there are open alternatives available. If anything, it faces even harsher competition in the tablet market.”
Apple may release the latest version of its iPhone in August or September, according to UBS AG. The product accounted for more than half the company’s revenue in the latest fiscal year. The smartphone maker, which introduced cheaper versions of the device to snatch market share from rivals, sold a record 51 million iPhones in the quarter ended December. RBC Capital Markets said in a March 28 note that it may release a phone with a larger screen that could sell at a premium to other versions.
Sales will increase 6 percent to $181 billion this year and another 6 percent to $192 billion in 2015, analysts’ estimates compiled by Bloomberg show.
“A new iPhone with a larger screen should get people excited,” said Manish Singh, who helps oversee $2 billion including Apple shares as head of investments at Crossbridge Capital in London. “Also, Apple’s cash on balance sheet means dividends or buybacks. That offers downside protection for shareholders, so I’m happy to hold Apple stock.”
Apple has $159 billion in cash and is in the midst of a buyback and dividend plan that will return $100 billion to shareholders.
Options on the smartphone maker cost 7.2 points more than those on the technology ETF, according to three-month implied volatility data compiled by Bloomberg on contracts with an exercise price near the shares. The difference dropped to 6.9 points on March 26, the smallest gap since February 2012.
Steve Dowling, a spokesman for Apple, declined to comment on the options trading.
The Chicago Board Options Exchange Apple VIX Index rose less than 0.1 percent to 22.46 yesterday. The CBOE NDX Volatility Index for the Nasdaq slid 2.2 percent to 16.37, while the CBOE Volatility Index of Standard & Poor’s 500 Index options was little changed at 13.09.
Apple traders own more bullish options than bearish ones. There were 1.22 million calls giving the right to buy the stock, 40 percent more than puts to sell, according to data compiled by Bloomberg as of April 1. Eight of the 10 most-owned contracts were bullish, with calls betting on a 9 percent jump to $590 by April 19 having the largest open interest, the data show.
“The entire tablet market landscape is about to undergo meaningful change as Apple introduces both a larger screen phone and a larger tablet with all the functionality of a notebook,” Timothy Arcuri and Bryan Prohm, analysts at Cowen & Co., wrote in a March 28 note. They rate the stock an outperform, the equivalent of buy. “New products provide the real excitement.”