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Apple Inc. (AAPL) Option Players Think the Worst Is Yet to Come

AAPL option buyers expect a breach of $400 by the end of the week

by 4/17/2013 12:41 PM
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Option bears are bombarding Apple Inc. (NASDAQ:AAPL), which is down 5.6% to trade at a new annual low of $400.71. At last check, the tech behemoth has seen around 311,000 puts cross the tape -- almost three times its average intraday volume. Most of the action has centered on April-dated puts, suggesting speculators are gambling on more downside for AAPL before the weekend.

Digging deeper, the April 400 put is most active, with more than 41,400 contracts traded at a volume-weighted average price (VWAP) of $2.71. Most of the puts crossed on the ask side, and volume has exceeded open interest, hinting at newly bought bearish bets.

By purchasing the puts to open, the buyers expect Apple Inc. (NASDAQ:AAPL) to extend its quest for new lows and breach $400 by Friday's close, when April-dated options expire. More specifically, the buyers will begin to profit if AAPL sinks beneath $397.29 (strike price minus VWAP) within the next couple of sessions. Should the security remain atop the strike through the end of the week, the most the buyers are risking is the initial premium paid for the puts.

Widening our sentiment scope, we find that the short-term options crowd is actually more bullishly biased than usual right now. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.54 indicates that calls nearly double puts among options with a shelf-life of three months or less. What's more, this ratio sits just 7 percentage points from a 52-week nadir, implying that near-term traders have rarely been more call-heavy during the past year.

Prompting today's preference for puts -- and AAPL's sell-off -- was a dismal revenue forecast from chipmaker Cirrus Logic (NASDAQ:CRUS), which supplies parts for the iPhone and iPad. Hints of weakening demand for Apple Inc. products are likely fueling skepticism ahead of the company's own turn in the earnings confessional next Tuesday.

Should Apple miss the proverbial mark, a mass exodus of bulls could exacerbate selling pressure on the shares. Not only are options traders more optimistic than usual, but 31 out of 37 analysts maintain "buy" or better ratings, with not a single "sell" in sight -- leaving the door wide open for additional downgrades.


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