The U.S. stock market is heading into the historically soft month of August trading near record highs. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, the S&P 500 Index (SPX) has averaged an August gain of 0.08% over the past 50 years — second only to September in terms of worst monthly performance. Making matters worse, the SPX tends to lag even more in August during the first year of a presidential cycle. And while it might be time to sell these stocks, not all news is bad, with FAANG names Apple Inc. (NASDAQ:AAPL) and Netflix, Inc. (NASDAQ:NFLX) among the best stocks to own in August.
Apple Stock is Trading Near Record Highs Ahead of Earnings
Over the past 10 years, Apple shares have averaged an August gain of 2.6%, and have ended the month positive seven times. Another win would just extend AAPL’s longer-term uptrend, with the stock up more than 43% year-over-year — and fresh off its longest daily winning streak in years. Based on Apple’s current perch at $149.96, a gain of this magnitude would put the stock around $153.86 — within striking distance of its May 15 record high of $156.65.
Optimism is running high toward Apple ahead of the iPhone maker’s earnings report, due next Monday night. The 160 strike has been popular among call buyers in both the standard August and September series, with 50,731 and 93,543 contracts outstanding, respectively. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) points to significant buy-to-open activity at both the front- and back-month option, suggesting Apple options traders are betting on a near-term jump to new highs.
Meanwhile, one volatility indicator we track suggests it’s an affordable time to buy premium on Apple options. The stock’s Schaeffer’s Volatility Scorecard (SVS) of 95 suggests the shares have tended to make outsized moves relative to what the options market has priced in — a potential boon to premium buyers.
Netflix Options are Cheap Right Now
Netflix shares have averaged an August gain of 5.3% over the past decade, boasting a 70% win rate. This would be nothing new for the stock, which has more than doubled in value year-over-year. And while the shares have pulled back slightly since notching a record peak of $191.50 one week ago, they found a floor near $180 — home to a 23.6% Fibonacci retracement of their July surge — and were last seen trading at $184.91.
In the options pits, the August 190 call is home to peak open interest of 21,870 contracts. However, data from the ISE, CBOE, and PHLX shows notable sell-to-open activity in recent weeks, meaning options traders expect Netflix to stall beneath the strike through front-month options expiration at the close on Friday, Aug. 18. Call buying, on the other hand, has been detected at the August 185 strike, where 12,582 contracts reside.
With Netflix reporting earnings in mid-July, volatility expectations have declined — making it a prime time to buy premium versus sell it. NFLX stock’s Schaeffer’s Volatility Index (SVI) of 31% ranks in the 17th percentile of its annual range, indicating short-term options are attractively priced, from a volatility perspective.
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