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Is the Worst Over for Apple Inc. (AAPL)?

AAPL investors are scooping up weekly call options

by 11/19/2012 11:35 AM
Stocks quoted in this article:

The shares of Apple Inc. (NASDAQ:AAPL 553.40) have rebounded along with the broader equities market, and are on pace to end atop their 10-day trendline for the first time in nearly a month. What's more, it looks like a few options speculators are expecting AAPL to extend its bounce through the end of the week, as evidenced by today's appetite for weekly calls.

At last check, AAPL has seen roughly 281,000 calls change hands -- a roughly 50% spike compared to its average intraday call volume. For comparison, just about 162,000 AAPL puts have traded thus far. Most popular have been the weekly 550- and 560-strike calls, which have seen roughly 20,200 and 16,000 contracts exchanged, respectively. Volume has exceeded open interest at both strikes, and the majority of the weekly calls have crossed at the ask price, hinting at buy-to-open action.

By purchasing the calls to open, the buyers are betting on AAPL to continue its upward momentum through the holiday-shortened week. Specifically, the volume-weighted average price (VWAP) of the 550-strike calls is $7.46, meaning the buyers will reap a reward if AAPL topples the $557.46 level (strike plus average premium paid) by Friday's close. Meanwhile, the VWAP of the 560-strike calls is $4.16, indicating a breakeven level of $564.16 -- in territory not charted since Nov. 7.

Today's preference for bullish bets marks a change of pace in the options arena, where investors have been initiating pessimistic positions amid AAPL's fall from grace. 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 0.70 stands higher than 89% of all other readings of the past year, suggesting speculators have bought to open AAPL puts over calls at a faster-than-usual clip during the past two weeks.

At last check, the shares of AAPL have tacked on 4.9% to wink at the $553.40 level. As alluded to earlier, the stock is set to conquer its 10-day moving average, which has ushered the security lower since it peaked at $705.07 in late September.

Daily Chart of AAPL since September 2012 With 10-Day Moving Average


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