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Apple Inc. (NASDAQ:AAPL) Option Players Expect a Rally

AAPL fans flocked to out-of-the-money, weekly calls

by 10/23/2012 10:28 AM
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Option traders are betting on a short-term pop for Apple Inc. (NASDAQ:AAPL - 627.88), as evidenced by yesterday's appetite for weekly calls. However, from a broader sentiment standpoint, this affinity for bullish bets runs counter to the growing trend seen on the major options exchanges.

During the course of yesterday's session, AAPL saw roughly 383,000 calls cross the tape, far surpassing the 218,000 puts exchanged. Garnering notable attention were the weekly 650-, 660-, 670-, and 680-strike calls, which each saw a significant jump in open interest overnight, confirming that traders established new positions here. Plus, the bulk of the weekly calls -- all of them out of the money -- crossed at the ask price, suggesting they were bought. By purchasing the calls to open, the buyers are expecting AAPL to skyrocket north of the respective strikes by the end of the week.

The investors likely paid a pretty penny for those calls, however. Heading into today's iPad mini debut, as well as the company's turn in the earnings confessional on Thursday, AAPL's short-term options have grown increasingly popular. As such, the equity's Schaeffer's Volatility Index (SVI) has ascended to 39% -- above 76% of all other readings of the past year, suggesting near-term options are relatively expensive at the moment.

As alluded to earlier, though, yesterday's appetite for calls stands in contrast to the recent trends. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.68 ranks in the 84th percentile of its annual range. In other words, option buyers have initiated bearish bets over bullish at a much faster pace than usual during the past couple of weeks.

On the other hand, the brokerage bunch remains entrenched in the bullish camp. Currently, AAPL boasts 34 "strong buys" and four "buy" ratings, compared to one lukewarm "hold" rating and not a single "sell."

Technically speaking, the shares of AAPL have pulled back roughly 11% since touching an all-time high of $705.07 in September. Nevertheless, the stock found a foothold in its 160-day moving average, which is also near its April 2010 peak. This trendline has served as support for the equity since May 2010, and could launch AAPL on its next leg higher.

At last check, the shares have shed about 1% to trade near $627.88.


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