Apple’s new watch has traders punishing one massive retailer

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The new Apple Watch Series 3 has stock traders bearish on other watchmakers like Swatch.
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Apple

One major retailer is taking the news of Apple’s new watch, announced Tuesday, on the chin.

Swatch, the $21 billion Swiss watchmaker, dropped as much as 4.5% on Wednesday when European trading opened, losing almost $1 billion in market value in the process.

Based on the stock reaction, traditional watch retailers like Swatch will have their work cut out for them as they face unprecedented pressure from their most technologically advanced competition yet.

Of particular concern to at least one analyst is how the Apple Watch Series 3 no longer requires an iPhone to perform cellular functions – something that could greatly boost its appeal.

“The fact the new watch is untethered from the phone has the potential to be a game-changer,” Jon Cox, an analyst at Kepler Cheuvreux, told Bloomberg News in an interview. “It is a fight for wrist real-estate and superb functionality versus a simple quartz watch. In many cases, the quartz watch is going to lose.”

If investors trading Swatch options are to be believed, the company’s share-price woes are just getting started. They’re paying the highest premium in a year to hedge against a 10% decline in the company’s stock over the next month, relative to the cost of bets on a 10% increase, according to Bloomberg data.

swatch skew

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Traders are hedging the most they have in a year against a decline in Swatch shares.
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Business Insider / Andy Kiersz, data from Bloomberg

What’s more, four of the five Swatch options contracts with the highest open interest – defined as outstanding commitments trading now – are bearish puts.

Further, while UBS recently identified Swatch as the company most vulnerable to a new Apple product, the US watchmaker Fossil may also be affected.

While it’s too early to anoint the Apple Watch Series 3 the new king of wristwear, the writing is on the wall for the industry as a whole: adjust, or watch your stock fall.

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Swatch’s one-week price chart. Can you tell when the Apple Watch Series 3 announcement was?
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Markets Insider