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Most Active Options Update: Apple Inc. (AAPL)

Apple Inc. option bears are placing short-term bets

by 7/31/2014 12:24 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 today is Apple Inc. (NASDAQ:AAPL), which is trending lower amid a slew of rumors.

Most Active Options Table

Specifically, Apple Inc. will reportedly debut its iPhone6 on Sept. 16, but won't actually launch the device until mid-October -- which, if true, would go against the usual AAPL schedule. Meanwhile, Bloomberg is reporting that Apple is planning to lay off about 200 employees from recent acquisition Beats Electronics.

On the charts, AAPL has shed 2.2% to linger near $96.05. Options traders are scrambling to place eleventh-hour bets on the tech concern, sending the security's 30-day at-the-money implied volatility 17.1% higher to 23.5%. What's more, nine of the 10 most active options expire at tomorrow's closing bell.

While intraday call volume is running around normal levels, AAPL put volume is running at a 67% mark-up to the norm. Attracting notable attention have been the weekly 8/1 96- and 97-strike puts, which have seen volume surpass open interest, hinting at fresh initiations. Plus, a healthy portion of the puts crossed on the ask side, suggesting they were bought.

The volume-weighted average price (VWAP) of the 96-strike puts is $0.44, meaning the buyers will profit if AAPL is docked beneath $95.56 (strike minus VWAP) at tomorrow's close, when the weekly options expire. The buyers' reward will increase the closer AAPL moves to zero, while risk is capped at the initial premium paid for the puts, should AAPL hold on to $96. In light of today's descent, delta on the puts has jumped from negative 0.085 yesterday to negative 0.52 today, pointing to a roughly 50% chance of an in-the-money finish.

Meanwhile, the VWAP of the 97-strike puts is $0.81, due to their added intrinsic value. As such, the buyers stand to profit if AAPL is sitting south of $96.19 at expiration tomorrow night. Again, the speculators' reward will increase the further AAPL falls, while risk is limited to the initial net debit. Delta on the now in-the-money puts has more than tripled today, from negative 0.21 yesterday to negative 0.76, suggesting a greater than 3-in-4 shot of expiring in the money.

Digging even deeper, it looks like one option bear took a more cautious approach, hedging his weekly 8/1 97-strike puts with 95-strike puts in the same series. Specifically, the trader bought the higher-strike puts for $0.90, and simultaneously sold the lower-strike puts for $0.14, resulting in a net debit of $0.76 per pair of options.

While the sold puts limit the trader's cost of entry -- which represents the maximum risk on the trade -- and, thus, his breakeven ($96.24, or bought strike minus net debit), they also cap his profit potential. In the case of this bear put spread, reward will top out at $1.24 (difference between strikes minus net debit), should Apple Inc. (NASDAQ:AAPL) breach the $95 level by the end of the week.


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