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Apple Inc. (AAPL) Bears Target a Break of $400

The AAPL May 400 put sees some bearish attention

by 5/1/2013 1:47 PM
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Bullish sentiment has been running high on Apple Inc. (NASDAQ:AAPL) of late, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 10-day call/put volume ratio of 1.57 reveals that options traders have snatched up 1.57 calls for every put during the past two weeks. Likewise, Schaeffer's put/call open interest ratio (SOIR) for the stock stands at 0.70, implying that calls outnumber puts among options with a shelf-life of three months of less.

Meanwhile, sentiment among the brokerage bunch mirrors that of the options crowd. Of the 37 analysts weighing in on AAPL, 31 rate the stock as a "buy" or "strong buy." From a contrarian perspective, the high number of "buy" or better ratings and the heavy buy-to-open call activity on AAPL -- which has declined about 25% year-over-year -- potentially make the stock vulnerable to contrarian headwinds, should these bullish holdouts begin to capitulate.

Since I last checked, the stock today has trickled down to its current perch of $437.08 from yesterday's closing price of $442.78, and some options traders could be doubting the stock's near-term performance. One of the most popular options among AAPL traders today is the out-of-the-money May 400 put, where roughly 13,000 contracts have changed hands so far at a volume-weighted average price (VWAP) of $1.56. Of these contracts, 83% went off the ask price, and the option's implied volatility has risen, collectively pointing to buy-to-open activity.

For the option players to profit, AAPL has to slide south of the breakeven price of $398.44 (strike price less the VWAP) -- territory AAPL has flirted with over the past two weeks -- by the sound of the closing bell on May 17, when the option expires. If the stock remains above the 400 strike through expiration, however, the put buyers will lose 100% of the initial premium paid.

Yesterday, Apple Inc. (NASDAQ:AAPL) made headlines when it sold the largest corporate-bond deal in history, offering $17 billion worth of bonds. The company says the deal is part of an effort to return $100 billion to its shareholders by 2015.


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