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As we often observe ahead of options expiration, trading accelerated in Apple Inc. (NASDAQ:AAPL - 446.06) option pits on Thursday, as traders tried to squeeze out a profit in a short period of time. Calls were the preferred variety during yesterday's session, as the stock pared some of its losses following a public conference call hosted by vocal hedge-fund manager (and Apple critic) David Einhorn.
Most popular were the weekly 2/22 450-strike calls, where more than 50,000 contracts traded on open interest of under 5,500. The majority of the trades went off at the ask price, suggesting the presence of some newly purchased bullish bets. Based upon the volume-weighted average price of $2.05, these trades are a bet that AAPL will move north of $452.05 (strike plus VWAP) by today's closing bell, when these weekly options expire.
The largest single block trades, however, changed hands at the out-of-the-money 2/22 470-strike calls. Two blocks in particular -- comprised of 1,888 and 1,780 contracts -- each traded at the ask price of $0.12 per contract, making the blocks themselves worth a total of $22,656 and $21,360, respectively. These large-scale investors have a long way to go toward profitable territory. Specifically, AAPL needs to have advanced above $470.12 (strike plus premium paid) by the close of trading today. If AAPL ends the session south of the strike price, the traders stand to lose 100% of the premium paid. The delta for this option stands at 0.022, implying a less than 3% chance these calls will be in the money within a matter of hours.
Even while Apple Inc. has taken its lumps of late -- shedding more than one-third of its value from its September all-time high of $705.07 -- the bullish faithful remain a vocal bunch. In the last 10 days of trading at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the number of calls bought to open has exceeded puts nearly 2-to-1. In fact, the 10-day call/put volume ratio of 1.82 is higher than 84% of the past year's worth of readings.
In a similar vein, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.59 stands among the bottom 8% of the past year's readings. In other words, among options expiring in the next three months, call open interest has rarely trumped put open interest by as large a margin during the past year.
Meanwhile, AAPL is hovering north of another potential support zone -- its 32-month moving average, which is perched just below $440. This long-term trendline acted as a floor for AAPL last month, and has not been breached on a monthly closing basis since March 2009.