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Volatility: Apple vs. Exxon


Whose paper would you be better off owning?

This is Exxon (XOM) here, and as you can see, the implied volatility path over the past year is not all that importantly different from Apple (AAPL). Apple peaked a bit higher, but returned to old levels, similar to here.

One big difference, though: XOM options change hands very much in line with realized volatility in XOM itself. Contrast that with AAPL, where options trade at about double, by that metric.

Now, this isn't an apples-to-oranges comparison. Options merit a premium to stock volatility if there is high likelihood of a gap move. Consider a small biotech as an extreme example. If news is expected, options may trade 10 or 20 times as high in volatility terms.

And Apple is certainly more likely to have a news event than Exxon.

But even factoring that in, I'd rather own paper with a picture like Exxon than I would in a picture like Apple.

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No positions in stocks mentioned.
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