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Apple Inc. (AAPL) Targeted By Last-Minute Bulls

AAPL fans are flocking to weekly call options

by 11/9/2012 2:11 PM
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The shares of Apple Inc. (NASDAQ:AAPL - 548.17) are bouncing back from multi-month lows, prompting an influx of last-minute bullish bets. In afternoon action, AAPL has seen roughly 579,000 calls cross the tape -- marking a 63% increase from its average intraday call volume. What's more, a healthy portion of the volume has transpired at soon-to-expire strikes.

Digging deeper, the weekly 545-, 550-, and 555-strike calls have garnered the most attention, with tens of thousands of contracts exchanged at each strike. The majority of the calls have traded at the ask price, and volume has exceeded open interest at all three strikes, underscoring our theory of eleventh-hour buy-to-open activity.

By purchasing the calls to open, the buyers are expecting AAPL to remain above or surmount the respective strikes by today's closing bell, when the weekly options expire. Specifically, the volume-weighted average price (VWAP) of the 545-strike calls is $4.14, meaning the buyers will profit if AAPL topples the $549.14 level (strike plus average premium paid) within the next couple of hours. Likewise, the VWAPs of the 550- and 555-strike calls are $2.56 and $1.22, respectively, indicating breakeven levels of $552.56 and $556.22.

Today's appetite for calls runs counter to the growing trend, though. The security's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 0.72 -- just seven percentage points from a 52-week peak. In other words, option buyers have initiated bearish bets over bullish at a near annual-high pace during the past couple of weeks.

Technically speaking, Schaeffer's Senior VP of Research Todd Salamone suggests AAPL could be a "buy" at current levels. The stock is approaching its 320-day moving average, which has marked significant lows in the past, and just bounced off its potential "double bottom" in the $530 area. Furthermore, in the wake of its recent pullback, the stock's Relative Strength Index (RSI) now sits at 24 -- in oversold territory.


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