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Apple Inc. (AAPL) Bearish Betting Hits Fever Pitch

Apple Inc. puts are being purchased at an annual-high clip

by 3/31/2014 9:40 AM
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Apple Inc. (NASDAQ:AAPL) -- which kicks off its second courtroom showdown with Samsung Electronics today -- has been popular among put buyers recently. In fact, on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio sits at an annual high of 0.78. In other words, options traders have purchased AAPL puts over calls at a much faster-than-usual clip during the past couple of weeks.

Furthermore, the equity's Schaeffer's put/call open interest ratio (SOIR) is on the rise, and now stands at 0.81 -- just 4 percentage points from a 52-week peak. In simpler terms, near-term options players have rarely been more put-skewed during the past year.

Echoing that, AAPL saw roughly 164,000 puts change hands on Friday, representing a 14% mark-up to its average daily volume. The May 530 put was the most active option not expiring at the closing bell, with almost 7,850 contracts exchanged. Sixty-nine percent of the puts traded on the ask side, suggesting they were bought, and open interest rose by more than 6,350 contracts over the weekend -- the most of any strike.

By purchasing the puts at a volume-weighted average price (VWAP) of $17.14, the speculators will make money if AAPL is sitting south of $512.86 (strike minus VWAP) when the options expire at the close on Friday, May 16. From the stock's current perch at $538.49, it would take a drop of about 4.8% -- into territory not charted since early February -- in order to perforate breakeven. Risk, meanwhile, is limited to the initial premium paid for the puts.

While AAPL's 30-day at-the-money implied volatility rose 4.3% to 22.8% on Friday, the equity's short-term options remain relatively inexpensive. The stock's Schaeffer's Volatility Index (SVI) of 20% ranks in the fourth percentile of its annual range, implying that short-term contracts are affordably priced, from a volatility perspective.

Technically speaking, Apple Inc. (NASDAQ:AAPL) shares are on pace to end the month 2.3% higher, but end the quarter with a 4% deficit. The stock has spent the bulk of 2014 battling its 10-week and 20-week moving averages, but last week finished a hair north of these trendlines for just the fourth time this year. Off the charts, the company is tentatively scheduled to report fiscal second-quarter earnings in mid-to-late April.


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