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Most Active Options Update: Apple Inc. (AAPL)

Apple Inc. option bears roll the dice on another earnings-induced drop

by 7/9/2014 12:45 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is Apple Inc. (NASDAQ:AAPL).


Although Apple Inc. lost a patent-infringement lawsuit in China yesterday, the stock is higher this afternoon, thanks to an early morning price-target hike at Mizuho. At last check, AAPL was up 0.4% to $95.71. In the security's options pits, calls are outpacing puts by a 2-to-1 margin, and all 10 of the most active options expire this month.

Drilling down, the four most actively traded AAPL options reside on the call side. However, based on a lack of notable data, it is impossible to tell whether these contracts are being opened or closed. What is painting a clearer picture is the activity happening at the equity's weekly 7/25 93-strike put. Specifically, two-thirds of the 12,372 contracts traded here have gone off on the ask side, and volume outstrips open interest -- two indications of buy-to-open activity.

The out-of-the-money puts are being purchased for a volume-weighted average price (VWAP) of $1.43, making breakeven at the close on Friday, July 25 -- three days after the company reports quarterly earnings -- $91.57 (strike less VWAP). Traders' profit will accumulate on a move down to zero, while losses are limited to 100% of the premium paid, should AAPL settle north of the strike at expiration.

When looking back at the stock's price action following recent turns in the earnings confessional, history tends to favor bears. Although the iPad purveyor has exceeded analysts' bottom-line estimates in six of the past eight quarters, the security averages a single-session post-earnings loss of 1.9%. Discounting last quarter's 8.2% pop in the subsequent session, this decline widens to 3.3%. For Apple Inc.'s (NASDAQ:AAPL) fiscal third quarter, Wall Street is calling for a per-share profit of $1.22 -- a 15-cent improvement over the company's year-ago results.


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