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Option speculators are anticipating a post-earnings pop for Apple Inc. (NASDAQ:AAPL - 512.00), as evidenced by today's appetite for very short-term calls. In afternoon trading, AAPL has already seen roughly 303,000 calls change hands, representing a 25% mark-up to its average intraday call activity, and nearly doubling the number of AAPL puts exchanged.
Garnering the most attention have been the weekly 1/25 510- and 550-strike calls, which have seen about 11,000 and 12,500 contracts traded, respectively. Most of the calls have crossed at the ask price, suggesting they were bought. Plus, volume has exceeded open interest at the 510 strike, and implied volatility on the 550-strike call is trending higher -- both signs of fresh initiations.
By purchasing the weekly calls to open, the buyers expect AAPL to end north of the respective strikes by Friday's closing bell -- which encompasses the company's turn in the earnings confessional tonight. More specifically, the 510-strike calls traded at a volume-weighted average price (VWAP) of $17.23, meaning the buyers will profit if AAPL jumps atop the $527.23 level (strike plus VWAP) by the end of the week. Meanwhile, the VWAP of the 550-strike calls is $3.09, indicating a breakeven level of $553.09.
However, today's affinity for short-term calls is par for the course for AAPL. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.55 indicates that calls nearly double puts among options expiring within three months. Even more telling, perhaps, this ratio sits at a 52-week nadir, suggesting short-term options players haven't been more call-heavy during the past year.
In the same optimistic vein, the stock boasts 32 "strong buys" and four "buy" endorsements from analysts, compared to three lukewarm "holds" and not a single "sell" or worse suggestion. This morning, though, the stock was slapped with a relatively rare negative note, after FBR cut its price target to $675 from $725.
With just over two hours until the big reveal, the shares of AAPL are up 1.4% to linger in the $512 neighborhood.