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Apollo Group Traders Forecast a Short-Term Drop

Weekly put players swooped down upon APOL

by 9/11/2012 10:44 AM
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Apollo Group Inc (NASDAQ:APOL - 28.56) was hammered with bearish options activity on Monday, as roughly 13,000 puts changed hands. This was seven times the equity's average daily put volume, and nearly nine times the number of calls traded.

Weekly options appeared to be most prevalent on put players' radars yesterday. The weekly 29 strike saw more than 3,600 contracts cross the tape, while close to 3,200 puts were exchanged at the 28.50 strike. The majority of these options traded at the ask price, suggesting they were bought. Specifically, the volume-weighted average price for the 29 strike was $0.47, while the 28.50 puts were purchased at an average price of $0.36 per contract. Because implied volatility increased by more than eight percentage points for both strikes by the closing bell -- along with the fact that both options saw an overnight rise in open interest -- it's safe to say that new positions were added here. Essentially, traders are expecting the stock to trek south of $28.53 (or sink below $28.14, in the case of the 28.50 put strike) by expiration this Friday.

This preference for puts over calls is simply more of the same for APOL. In fact, the equity sports a Schaeffer's put/call open interest ratio (SOIR) of 2.18, confirming that puts more than double calls among options slated to expire in the next three months. This ratio is docked in the 88th percentile of its annual range, meaning near-term traders have been more put-heavy toward the stock just 12% of the time during the past year.

In a similar vein, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 6.87 for APOL, conveying that traders have bought to open nearly seven puts for every call during the last two weeks. This ratio is just 11 percentage points shy of a yearly peak, indicating that speculators have been snapping up bearish options over bullish at a near annual-high clip.

However, although APOL scored a downgrade late last week, most of the analysts covering the private education provider seem to have a little more faith. Currently, the stock boasts eight "strong buys" and one "buy" endorsement, compared to six "holds" and not a single "sell" recommendation to be found.

APOL has been struggling on the technical front lately, considering its 52-week decline of about 38%, as well as its year-to-date loss of almost 47%. The beleaguered stock has also lagged the broader S&P 500 Index (SPX) by over 20 percentage points during the past three months. On the charts, the equity remains pinned beneath its 60-day moving average, which has largely eluded the security since early July. With today's 1.9% advance, however, Monday's bears will need APOL to reverse its direction quickly in order secure a profit by week's end.


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