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Apple Inc. (AAPL) Traders Have High (Short-Term) Hopes

Weekly out-of-the-money call options active on AAPL

by 12/6/2012 12:07 PM
Stocks quoted in this article:

While skepticism remains prevalent toward Apple Inc. (NASDAQ:AAPL - 548.04), some very short-term speculators are hoping the stock finishes out the week on a high note. Weekly options -- which have less than 36 hours of life left in them -- are surging in popularity as the stock battles back from a morning plunge.

As my colleague Andrea Kramer noted earlier this week, option speculators have been scooping up puts at an increased pace of late. This trend has continued, with the stock's 10-day put/call volume ratio of buy-to-open activity on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) edging up to 0.66, placing it in the top one-quarter of the past year's worth of readings.

Today, however, call options are in the spotlight. More than 388,000 calls have already changed hands this morning, more than twice the typical intraday call volume. By contrast, 312,000 put contracts have traded. The 12/7 540 call and the 12/7 550 call are running neck and neck for the position of most popular strike. On both calls, volume is easily exceeding open interest, and implied volatility is moving higher, suggesting buyers are holding the reins.

The closer-to-the-money option has seen nearly 23,000 contracts trade, the majority of which have been off the ask price. With a volume-weighted average price of $6.31, breakeven on the position is $546.31 (strike plus net debit paid). Given the stock's recent pop higher, this is actually a discount to the stock's current price; AAPL needs only stay above this level through tomorrow's close in order to keep these long calls in profitable territory.

Meanwhile, the 550-strike call has seen the majority of its 23,000 contracts trade off the ask price, for an average premium of $3.37. The breakeven at expiration for this short-term option is $553.37, or a 1.1% move from AAPL's present perch.

If AAPL fails to deliver these gains by 4:00 p.m. (Eastern) tomorrow, the most these call buyers can lose is the premium paid (plus commissions). And with a Schaeffer's Volatility Scorecard (SVS) reading of 97%, options prices are quite palatable relative to the odds of an outsized move in the shares. Anything is possible with AAPL; the stock gapped $20 out of the gate this morning and is currently trading above breakeven.

Intraday chart of Apple Inc. (AAPL) since Dec. 5, 2012

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