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Apple Inc. (AAPL) Swarmed By Last-Minute Option Traders

AAPL speculators are buying and selling soon-to-expire options

by 3/15/2013 11:03 AM
Stocks quoted in this article:

The shares of Apple Inc. (NASDAQ:AAPL - 440.23) are on the mend this morning, bucking the broad-market trend lower. What's more, the tech concern has attracted a fresh crop of eleventh-hour option traders, with speculators gambling on the security's trajectory ahead of options expiration this afternoon.

Within the first 90 minutes of trading, Apple has seen roughly 193,000 calls and 135,000 puts change hands, more than doubling its average intraday volume. Soon-to-expire March-dated options are popular on both sides of the aisle, accounting for the top 10 most active strikes thus far, and representing a healthy mix of bullish and bearish bets.

On the call side, traders have taken a shine to the March 440 and 445 calls, which have each seen about 32,000 contracts cross the tape. While the 440-strike calls have crossed on the ask side, suggesting they were bought, the 445-strike calls are trading mostly at the bid, pointing to seller-driven volume. Plus, volume has exceeded open interest at both strikes, hinting at new last-minute positions.

By purchasing the 440-strike calls at a volume-weighted average price (VWAP) of $2.23, the buyers' profit will increase as the shares of Apple Inc. (NASDAQ:AAPL) exceed the $442.23 level (strike price plus VWAP) today. Risk, meanwhile, is limited to the initial premium paid for the calls.

On the flip side, the March 445 call sellers are expecting AAPL to remain south of $445 through the closing bell. In this best-case scenario, the calls will remain out of the money, and the sellers can retain the entire net credit of $0.63 (the VWAP). However, should AAPL muscle atop this level by the close, the sellers could be on the hook to deliver AAPL shares at $445 apiece -- a discount to what they'd get on the Street.

In similar fashion, speculators are also buying and selling AAPL puts. Buyers are picking up March 440 puts at a VWAP of $2.03, meaning they'll reap a reward if the stock breaches the $437.97 level (strike price minus VWAP) within the next few hours. Again, risk is capped at the initial premium paid.

On the other hand, premium sellers are targeting the out-of-the-money March 435 puts, which have traded at a VWAP of $0.63. In order to pocket the entire net credit received at initiation, the sellers need AAPL to remain atop the $435 level through 4 p.m. Eastern, when the options expire. Should Apple Inc. (NASDAQ:AAPL) perform an about-face and perforate the strike, the sellers could be obligated to buy the shares at $435 apiece -- a premium to what they'd pay on the Street.

At last check, AAPL is 1.8% higher to wink at the $440.23 level. The stock has shrugged off an early price-target cut from Sterne Agee, with other analysts seemingly unimpressed by Samsung Electronics' new Galaxy S4 smartphone. Against this backdrop, the security is on pace to end atop its 10-day and 20-day moving averages for just the fourth time this year.

Daily Chart of AAPL since December 2012 With 10-Day and 20-Day Moving Averages


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