Apple is now pricing like a meme stock

I was looking at the Apple options chain this morning when I stopped and said it out loud: this is freaking Apple. This isn't AMD. This isn't Intel. This is freaking Apple.

And it just started showing an inverted implied volatility skew.

That sentence is going to mean nothing to most retail investors, so let me explain what it is and why it matters. 

In the options market, traders pay a premium for protection, and out-of-the-money puts, the contracts that pay off if a stock falls, almost always cost more than out-of-the-money calls of the same distance from the current price. That price difference is called skew, and it has been a structural feature of the equity options market for decades.

When skew inverts, calls start costing more than puts. 

It happens when call buying becomes so intense that the demand pushes the price of out-of-the-money calls above the price of equally far out-of-the-money puts, which is the options-market signal that a stock is being squeezed.

Inverted skew used to be a meme-stock thing. GameStop, AMC, and most of the retail-driven squeeze trades all showed it back in 2021.

Now Apple has it.

Not the early-stage version. 

Apple's puts are still pricing slightly higher than its calls right at the money, but further out of the money, the skew is starting to bend up on the calls. The same is true of Intel, AMD, and Tesla, and the QQQ skew which represents the entire Nasdaq 100 is now nearly flat where it used to be steep on the put side.

That is unusual. 

Apple is the largest company in the world by market cap and sits in nearly every retirement account in America, the textbook example of a stable mega-cap. 

The fact that the options market is now pricing it the way it priced GameStop four years ago is not a coincidence, and the skew is getting funky on the one name that should never get funky.

The reason matters more than the signal. Traders are buying so many out-of-the-money calls on Apple that market makers cannot meet the demand without raising prices. 

The mechanical buying pressure that gets created when those market makers hedge their short call positions is now what is driving Apple higher, not earnings or product cycles or iPhone unit sales.

This is the same gamma squeeze dynamic playing out across the whole market, but the fact that it has reached Apple specifically is the tell. When the most-owned stock in America starts pricing like a squeeze candidate, the squeeze has gone further than most traders realize.

There are several ways to position for what comes next. 

If you want to know how to attack this market— it’s simple. 

Be in the TheoTrade Chatroom. I’m live every morning for the open, followed by a group of sharp traders who see the angles the mainstream misses. 

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To your success,

Don Kaufman