Options action suggests Apple earnings will not roil its shares By Angela Moon and Doris Frankel NEW YORK/CHICAGO (Reuters) - Apple Inc is not expected to show a big post-earnings swing when it reports fiscal third-quarter results after the closing bell on Tuesday, but this could also mean investors are under-hedged in case the company delivers a shock. The options market is pricing in a potential move up or down of 4 to near 5 percent in Apple's stock price following the results. This is in line with a historic average move of about 4.3 to 4.4 percent over the past four quarters. "Even though the implied move is relatively in line with historical movements, it is our belief that implied volatility is too high ahead of the announcement and that the stock will move less than expected," said Andrew Keene, president and founder of options trading firm KeeneOnTheMarket.com in Chicago. Implied volatility measures the perceived risk of future stock movements conveyed by option prices. "Google and Netflix both massively undershot their implied moves on earnings and we will be trading Apple expecting the same," Keene said. Apple shares were down 0.8 percent at $422.82 on the Nasdaq early on Tuesday afternoon. The stock's post-earnings moves have been all over the map in the last year: down 4.3 percent the day after earnings came out in July 2012, down 1 percent in October 2012, a 12 percent drop in January 2013, and no move in April. Normally what happens into an earnings event is that implied volatility will run higher as traders and investors look to protect themselves against any large moves in the stock. We did not see that this quarter," said Steve Place, founder of options analytics firm investingwithoptions.com in Austin, Texas. The iPhone and iPad maker is expected to post a smaller quarterly profit and its financial report may come under intense scrutiny. Revenue is expected to come in flat, while earnings per share is expected to fall by 21 percent, according to Thomson Reuters data. The implied volatility for the next 30 days for Apple stands at 29.4 percent, according to options analytics firm Livevol. That number compared with the same measure from the past seven earnings cycles is very low, said Ophir Gottlieb, managing director of Livevol Inc. "This tells us that investors are not expecting large movements and they would be under-hedged if Apple earnings deviated significantly from what is expected," Place said. Because of this, investors using short-term volatility strategies such as selling options to capture premium going into earnings are exposed to the risk of a larger-than-expected move in the stock compared with previous quarters, Place said. "If history repeats, it suggests an options bet on a 4 percent move could prove disastrous from either the long or short volatility side," said Adam Warner, contributor at Schaeffer's Investment Research in Cincinnati, Ohio. Once the most valuable company in the world, Apple's stock price has hovered between $400 and $450 for months, after dropping from record high around $705 in September 2012. The stock has lost nearly 20 percent of its value this year. The intrinsic value of Apple is estimated at $728, way above the current share price, according to Thomson Reuters' Starmine. Editing by Matthew Lewis