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Apple Inc. (AAPL) Speculators Stay Hopeful

Option players are gambling on AAPL's end-of-week trajectory

by 11/28/2012 12:27 PM
Stocks quoted in this article:

The shares of Apple Inc. (NASDAQ:AAPL - 577.70) are following the broader equities market into the red, though they've pared the worst of their intraday losses. However, today's pullback isn't deterring the short-term options crowd, with speculators employing both calls and puts to place neutral-to-bullish bets on the iPhone maker.

On the call side, traders are establishing new positions at the weekly 575-, 580-, and 590-strike calls, which have seen roughly 22,000, 23,000, and 16,000 contracts change hands, respectively. Volume has exceeded open interest at all three strikes, and the majority of the calls crossed at the ask price, hinting at buy-to-open activity.

By purchasing the calls to open, the buyers are expecting AAPL to end the week north of the respective strikes. Specifically, the volume-weighted average price (VWAP) of the 575-strike calls is $6.77, meaning the buyers will profit if AAPL muscles back atop the $581.77 level (strike plus average premium paid) by Friday's close. Meanwhile, the respective VWAPs of the 580- and 590-strike calls are $4.51 and $1.63, indicating breakeven levels of $584.51 and $591.63.

On the flip side, the equity's weekly 570- and 575-strike puts have seen around 20,000 and 26,000 contracts cross the tape, respectively. Again, volume has exceeded open interest at both strikes, pointing to fresh initiations. However, the majority of the puts have traded at the bid price, suggesting they were sold.

By writing the puts to open, the sellers are expecting AAPL to remain north of the strikes through the end of the week. In this best-case scenario, the puts will stay out of the money, allowing the sellers to retain the entire premium received at initiation.

As Beth Gaston noted earlier this week, AAPL is no stranger to option players' affection. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.66 indicates that calls comfortably outnumber puts among options expiring within three months. Even more telling, this ratio stands higher than just 12% of all others of the past year, implying that near-term options players are more call-biased than usual right now.

In the same optimistic vein, AAPL sports 33 "strong buys" and four "buy" ratings from analysts, compared to two lukewarm "holds" and not one "sell" or worse recommendation.

At last check, AAPL has given up 1.2% to wink at the $577.70 level. Earlier in the session, the shares fell as low as $572.26. From a longer-term perspective, the security has rebounded roughly 14% since touching a nine-month low of $505.75 earlier this month, and is on pace to end atop its 10-day and 20-day moving averages for a fourth straight day -- a feat not accomplished since mid-September, when AAPL was flirting with all-time highs. However, the equity is still staring up at its 200-day trendline, which contained its pullbacks in late 2011.

Daily Chart of AAPL since September 2012 With 10-, 20-, and 200-Day Moving Averages

On the fundamental front, traders are digesting news that Apple fired Richard Williamson, who was responsible for the company's much-criticized mapping service. On a happier note, data from Kantar WorldPanel indicates that AAPL's U.S. share of smartphone sales in the 12 weeks preceding Oct. 31 more than doubled from the year prior, thanks to early success of the iPhone 5. AAPL's market share now stands at $48.1%, while Google's (NASDAQ:GOOG) Android share fell to 46.7% from 63.3%.


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