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Apple Inc. (AAPL) Bearish Betting Approaches Annual High

Put buyers have taken an increased interest in Apple Inc.

by 4/14/2014 10:57 AM
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Options bears have been slowly asserting their dominance in the Apple Inc. (NASDAQ:AAPL) options pits in recent weeks. In fact, put-buying activity has rarely been as prominent on the iPhone parent. Specifically, over the last 50 trading days, roughly 1.07 million puts were purchased to open on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to 1.48 million calls. The resultant 50-day put/call volume ratio of 0.72 stands at a new annual high. For comparison's sake, this ratio stood at 0.50 at the end of 2013.

Echoing this trend, Apple's Schaeffer's put/call open interest ratio (SOIR) has risen sharply during the last couple of months and currently stands at 0.85, or 1 percentage point away from an annual high. In simpler terms, the short-term options crowd has rarely been so put-focused during the last 12 months. What's more, the gamma-weighted SOIR of 1.16 suggests that put activity is even more prevalent among near-the-money options.

Recently active bears have also been willing to open their wallets to place these bets, as far as volatility is concerned. The stock's 30-day at-the-money implied volatility measure bottomed out in mid-March, but recently hit its highest point since late January.

While the speculative crowd has taken a clear turn toward the bearish camp, Wall Street continues to wave the bullish flag. Of the 37 analysts following the tech heavyweight, 28 have named it a "buy" or better.

On the charts, Apple stock has dipped roughly 7.5% in 2014 to its present perch of $518.56, but is clinging to a year-over-year gain of more than 20%. The shares are currently trading around their ascending 160-day moving average, a trendline off of which AAPL bounced in mid-September and late January. If the stock manages to turn higher from this area, some of the recent option bears could be forced to capitulate. Such a shift might result in contrarian tailwinds that could be positive in the short term for the shares.

So far in today's session, the 10 most active Apple Inc. (NASDAQ:AAPL) option strikes are April calls and puts that will expire at the close of Thursday's trading. April expiration occurs before Apple reports quarterly earnings after the close next Wednesday, April 23. The company has topped analysts' bottom-line estimates in the past five consecutive quarters, by an average of 26 cents per share.


Option Sellers See Limited Upside for Twitter Inc (TWTR)

Twitter Inc speculators are selling to open front-month calls

by 4/14/2014 10:55 AM
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Option Brief: After falling to its lowest price since late November on Friday, Twitter Inc (NYSE:TWTR) is bouncing back along with the broader equities market, up 1.9% at $40.79. While TWTR calls are flying off the shelves at a faster-than-usual clip this morning, a healthy portion of the activity consists of neutral-to-bearish bets.

TWTR has seen more than 9,000 calls cross the tape -- representing an 18% mark-up to the stock's average intraday call volume. The most active call is the April 42.50 strike, where more than 1,200 contracts have changed hands. Ninety-three percent of the calls traded on the bid side, and implied volatility (IV) was last seen 3.7 percentage points higher, hinting at sell-to-open activity. Plus, volume has surpassed open interest at the front-month strike, underscoring our theory of fresh positions.

By writing the calls to open, the sellers expect TWTR to remain south of $42.50 through the end of the holiday-shortened week, when April-dated options expire. In this best-case scenario, the calls will remain out of the money, and the sellers can retain the entire net credit from the sale.

Now is an opportune time for short-term premium sellers to roll the dice. The stock's 30-day at-the-money IV has jumped from 63.9% at the end of March to its current perch at 83.1%. In other words, TWTR's short-term options are growing more expensive, relatively speaking, due to escalating demand.

On the charts, TWTR has surrendered 36% in 2014, pressured lower beneath its 10-day and 20-day moving averages. In fact, the former of these trendlines -- not toppled on a daily closing basis since March 12 -- is descending into the $42.50 region, which could bode well for the aforementioned option sellers. Off the charts, Twitter Inc (TWTR) CEO Dick Costolo, as well as co-founders Jack Dorsey and Evan Williams, said they won't sell any TWTR shares when the firm's lock-up period ends on May 5.


Nokia Corporation (ADR) (NOK) Option Traders Eye a Short-Term Bounce

Nokia Corporation's (ADR) April 7.50 call was bought to open on Friday

by 4/14/2014 9:23 AM
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Option bulls led the charge over their bearish counterparts on Nokia Corporation (ADR) (NYSE:NOK) Friday. Throughout the course of the session, specifically, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) bought to open 2,465 calls on NOK, compared to 458 puts, resulting in a top-heavy call/put volume ratio of 5.38.

Echoing this call-skewed trend is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.67, which ranks in the 35th percentile of its annual range. Simply stated, near-term traders have been more call-heavy than usual toward the equity.

A number of short-term call players on Friday targeted NOK's April 7.50 strike, where 5,417 contracts changed hands, including two large multi-exchange sweeps totaling 4,000. The vast majority of these calls went off on the ask side, implied volatility rose 4.1 percentage points on the day, and open interest added 4,638 new positions overnight -- the most of any strike. Putting it all together, it seems safe to assume that new bullish positions were initiated.

On Friday, Nokia Corporation (ADR) (NYSE:NOK) -- pressured lower by broad-market headwinds -- shed 3% to land at $7.41. Amid this decline, delta for the April 7.50 call fell to 0.43 from 0.64, suggesting a 43% chance of an in-the-money finish at this Thursday's close, which is when front-month options expire. Should the equity fail to regain its perch atop the $7.50 mark, the most the speculators stand to lose is the initial premium paid. According to Trade-Alert, the volume-weighted average price for the calls was $0.14.


Options Volume Accelerates as Groupon Inc (GRPN) Extends Slide

Groupon Inc calls and puts are being used to gamble on short-term headwinds

by 4/11/2014 3:00 PM
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Option Brief: Groupon Inc (NASDAQ:GRPN) options volume is running at a 43% mark-up to the intraday average this afternoon, with calls and puts trading near parity. Eight of the 10 most active strikes expire in the next three months, prompting GRPN's 30-day at-the-money implied volatility (IV) to rise 2.3% to 70.0% -- its highest level since late February. Diving deeper reveals that -- unlike yesterday's option players -- a number of today's traders are utilizing both calls and puts to bet on continued struggles for the daily deals website.

On the call side, the stock's April 7 strike has received notable attention, and the vast majority of the 6,270 contracts traded have done so on the bid side, pointing to seller-driven activity. Meanwhile, IV is up 6.4 percentage points, and volume outstrips open interest, hinting at the initiation of new positions. By writing the calls to open, traders expect GRPN -- currently trading at $6.89 -- to churn beneath the $7 mark through next Thursday's close, when front-month options expire. In this best-case scenario, the calls will expire worthless, and the traders will retain the initial premium collected as their maximum potential reward.

Elsewhere, put players are targeting GRPN's April 6.50 strike, where 4,460 contracts have changed hands -- 95% at the ask price. IV at this out-of-the-money strike has shot 6.3 percentage points higher, and one lonely contract currently makes up open interest here. Summing it all up, it appears there is some buy-to-open activity happening. Should GRPN fail to tumble the 5.7% necessary to breach the strike price -- an area not traversed by the stock since last May -- by front-month options expiration, the most the speculators stand to lose is the initial premium paid. According to Trade-Alert, these puts are being scooped up for a volume-weighted average price of $0.03 apiece.

This skeptical stance among option traders isn't surprising, considering shares of Groupon Inc (NASDAQ:GRPN) have surrendered almost 45% since tagging their Jan. 6 year-to-date high of $12.42. This downward trajectory is continuing in today's session, with the stock off 2.3% at last check.


Option Trader Gambles Big On a Yahoo! Inc. (YHOO) Rally

Yahoo! Inc. call volume is elevated, thanks in large part to a long call spread

by 4/11/2014 2:52 PM
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Option Brief: Yahoo! Inc. (NASDAQ:YHOO) options volume is running at nearly double the average intraday pace. In absolute terms, calls hold an advantage over puts, with 100,000 contracts on the tape versus 48,000. Looking more closely, nearly one-third of the call volume can be traced to a two-legged trade that took place just after the noon ET hour.

Diving into the details, a block of 16,780 April 35 calls changed hands at $0.53 each, while a matching lot of April 37 calls did so at $0.16 apiece. According to the International Securities Exchange (ISE), the lower-strike YHOO calls were bought to open, while the higher-strike calls were sold to open, as the trader set up a long call spread for a net debit of $0.37 per pair of contracts.

By using this moderately bullish strategy, the aforementioned individual expressed confidence in YHOO's ability to rally from its current position at $33.06 beyond the 35 strike by next Thursday's close, when front-month options expire. However, in order to partially offset the cost of the long position, the trader sold the 37-strike calls -- which also has the effect of capping his gains, even if the shares streak north of $37. No matter what happens, the most the speculator has on the line is the initial net debit; meanwhile, his maximum potential gain is $1.63, or the difference between the strikes less the net debit.

Shifting to fundamentals, Yahoo! Inc. (NASDAQ:YHOO) is scheduled to announce first-quarter earnings after the close next Tuesday, just 48 hours before April-dated options cease trading. In each of the last eight quarters, the company has topped the Street's bottom-line consensus view, resulting in an average gain of 0.9% in the following session. If that happens again, it will add to the Internet giant's already impressive 35% year-over-year advance.


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