Apple

(AAPL) - Get Report

announced Tuesday that Steve Jobs will not be attending the MacWorld Expo Jan. 6.

As you may or may not know, there is a great deal of concern that Jobs has health issues. The announcement caused brokerage firm Oppenheimer to downgrade shares of Apple to perform from outperform because they did not know why Jobs had pulled out of giving his annual speech.

Whenever a cancellation like this occurs, there is a negative reaction in the stock, regardless of the reason. It's classic speculation and fear. Where there is fear, there is heightened volatility. And that can lead to an increase in option activity and implied volatility.

With shares of Apple down more than $6 to $89, the Dec. 90 and 95 calls have each traded more than 28,000 times already. The 90 and 95 puts have also already traded more than 16,000 times each. Remember, these options expire at the close of trading Friday.

A measure of just how volatile a move the options are indicating is the December straddle (the sum of the call and the put) that is closest to where the underlying shares are trading. In this case, the 90 strike is the closest to the underlying stock price, and it is currently trading for around $4.67 ($1.79 in the calls and $2.88 in the puts). That means that the option market has the stock between $85.33 and $94.67 between now and Friday's close. Compare that to the SPY December 91 straddle which is trading $3.40, and you can at least see that the AAPL straddle is more expensive.

For implied volatility watchers out there, that is a 58.50 implied volatility on the straddle, but I like to point out that since the December options are so short dated, the straddle is better measured on breakevens than implied volatility For a more accurate measure of volatility, check out the July 100 calls. Last night with the stock at $95.43, the calls closed at $16.83, a 63 implied volatility. Today, with the stock at $89, those calls should be at $13.24 on a 63 volatility. They are not; they are up around $13.65, or about a little more than a 64 volatility.

Investors pay attention to option activity when they are developing their investment thesis to gain insights on expected volatility of the shares. How volatile a stock is expected to be can give them insights into if they have adequately accounted for how risky an investment they might make is going to be.

In the case of AAPL, the market today is anticipating the stock to be more volatile than when we went home last night. On top of that, the market is also weighing in some short-term risk, given the $9 potential price swing among Apple's shares between now and Friday. Even if you do not trade in the Apple options, investors should expect some volatility in the shares and proceed accordingly.

Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Pyle writes regularly about options investing for TheStreet.com.

Jud Pyle is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."