AAPL Declares Its Independence

by Tyler Craig on October 9, 2013

Just in case you didn’t have enough reasons to consider Apple Inc. (AAPL) stock for your portfolio, here’s another fascinating tidbit to mull over: the tech titan has declared its independence from the market.

That’s right.

AAPL and the S&P 500 Index have experienced a falling out of sorts. Whereas the two chums used to pal around together traveling northbound and southbound with synchronicity, they now frequently move in completely opposite directions. This curious change in behavior really started in late-2012 when AAPL began its distressing descent from $705.

Perhaps the easiest way to assess the changing relationship between both securities is using a correlation study. For those otherwise unfamiliar with this powerful indicator, a brief review is in order.

Measuring relationships plays a key role anytime investors are seeking to better understand how different asset classes are linked. It also aids in structuring a diversified portfolio because you need to know which securities move together and which move in opposite directions.

The correlation study measures the degree to which two assets are linked by oscillating in a range between +1 and -1. A score of +1 suggests both assets are perfectly positively correlated which means they always move in the same direction. In contrast, a score of -1 suggests both assets have a perfect negative correlation which means when one rises the other falls and vice versa. Finally, a rating of zero suggests both assets have no correlation meaning the behavior of one has no bearing whatsoever on the other.

As shown in the accompanying 5-year daily chart of AAPL its correlation began a metamorphosis in late-2012. During the “old normal” it boasted a strong positive correlation with the S&P 500 Index rarely venturing into negative territory. Now, however, it’s entered an entirely different phase – the “new normal” – where its correlation is all over the map, hovering near zero and below more than above.aapl

Far from being a good proxy for the market, AAPL has become a rebel stock hell-bent on marching to the beat of a different drummer. How long it lasts is anyone’s guess but while it persists in its independent ways investors in search of true diversification ought to consider adding the stock to their portfolios.


Not many people know that gold is also a viable commodity when it comes to options trading—this practice is not as common because of the volatility of gold prices. However, a basic understanding of how gold options work will enlighten investors of its benefits in the long run. What exactly are gold options? The Options Guide gave a thorough and simple discussion on this topic. Gold options use gold futures contracts as underlying asset; this means that the holder of the option has the right to call (long position) or put (short position) the gold futures subject of the contract at the strike price. The right will no longer be enforceable when the option expires, like in any other option contract.

What are the benefits of having gold options? For starters, they provide additional leverage because the payable premium is relatively less than the margin requirement. These option contracts can be used to hedge the price risk of gold, according to an article by T&K Futures and Options. Another analysis by Bullionvault.com, a gold trading and investment site, states that trading gold futures translates to purchasing gold on credit, so it gears up your gold investment. However, a warning is also issued: there is a risk of loss from the leverage due to volatility.

Gold options also tend to limit possible losses. Since it’s a mere right to assume the gold futures underlying the contract, losses are limited to the premium paid for the option. Even though recent financial reports by Forbes show a drop on the position of gold options and gold futures, investors are still optimistic that there will be a visible rise in the gold market in the coming weeks. The benefits, therefore, of gold options should not be immediately discounted. When the odds are weighed, it will still prove to bring more advantage than harm.


The Cause for the Pause

July 18, 2013

I knew there would come a time when I would awake from my blogging hibernation and that time appears to have finally arrived. Though I don’t know how frequently I will post going forward, I do want to at least bring everyone up to speed and explain my absence from the social sphere (my twitter [...]

Read the full article →

What to Make of Similar Spread Pricing

September 10, 2012

Given the plethora of strike prices across the variety of expiration months, option traders face a bevy of choices when structuring a position.  The options market is a world of tradeoffs lacking a single solution for all participants.  Risk and reward exist on a correlated scale where a rise in one invariably results in lifting [...]

Read the full article →

Somethin’ is Afoot in Small Caps

September 5, 2012

On a day when normalcy rules the roost, the broad market indexes exhibit a strong positive correlation.  Like slaves tethered together by chains the S&P 500 Index, Dow Jones Industrial Average, Nasdaq Composite, and Russell 2000 Index tend to move tit for tat.  While one Index may deviate mildly from the rest in the short-run, [...]

Read the full article →

Apple Volatility Abuzz

August 21, 2012

The relentless bullish vortex known as Apple Inc. achieved an impressive benchmark on Monday by finally climbing atop the totem pole of valuation.  With yesterday’s rally its market cap lifted over $661 billion thereby overcoming the previous record holder Microsoft, which traded at a $618.9 billion valuation in 1999. But, before all you Apple zealots [...]

Read the full article →

The Return of Risk Appetite

August 7, 2012

The so-called “risk on” trade has ruled the roost in recent days.  A return of risk appetite to Wall Street has resulted in a mass exodus from safe havens like US treasury bonds and the US dollar as well as defensive sectors like utilities and consumer staples.  To the delight of the bulls this flood [...]

Read the full article →

Gems from the Facebook Fiasco

August 1, 2012
Thumbnail image for Gems from the Facebook Fiasco

The day-by-day demise of Facebook (FB) continues to be a thorn in the side for shareholders of the social media behemoth.  Indeed, with FB falling to new lows today we can officially say that everyone who ever purchased the toxic stock is underwater. Yet, hidden within the epic failure are a few vital trading lessons [...]

Read the full article →

Why VXX Should Reverse Split…Again

July 17, 2012

The IPath S&P 500 VIX Short-term Futures ETN (VXX) burst onto the volatility scene at a cool $100 (split-adjusted) on January 30th, 2009. With the equities market grappling with a hangover from the 2008 malaise the VXX was able to withstand the beckoning of lower prices for a little over two months.  Then the epic [...]

Read the full article →

The Absence of Fear

July 13, 2012
Thumbnail image for The Absence of Fear

With the market down six days in a row one might think fear would be permeating Wall Street.  But, curious enough, fear – at least as measured by the CBOE Volatility Index (VIX) – has been notably absent during the recent selling bonanza. While the S&P 500 Index is down 2.8% since last Thursday’s open, [...]

Read the full article →

Enter your email address:

Delivered by FeedBurner