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Short-Term Apple Inc. (AAPL) Traders Don't Have High Hopes

AAPL speculators are writing out-of-the-money calls

by 11/15/2012 2:47 PM
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Call traders have converged on Apple Inc. (NASDAQ:AAPL- 528.26) today, but not for the traditional, bullish reasons. With a little more than an hour left in the trading day, the tech titan has seen roughly 450,000 calls cross the tape -- a 20% spike compared to its average intraday call volume. What's more, much of the action consists of sell-to-open activity, suggesting traders are gambling on limited short-term upside for AAPL.

Notably, the out-of-the-money November 540- and 545-strike calls have seen around 37,500 and 31,000 contracts change hands the majority at the bid price, underscoring our suspicions of seller-driven volume. Plus, volume has exceeded open interest at both strikes, indicating the initiation of new positions.

By writing the calls to open, the sellers are expecting AAPL to remain south of the respective strikes through tomorrow's closing bell. In this best-case scenario, the calls will expire worthless, allowing the traders to retain the entire premium received at initiation. And as my colleague Beth Gaston noted earlier this week, those premiums are relatively pricey at the moment, as evidenced by AAPL's ascending Schaeffer's Volatility Index (SVI). Assuming the calls are "covered," the sellers are AAPL shareholders, meaning they're trying to supplement income amid the stock's decline. However, should the stock rebound above the $540 mark by the end of the week, the November 540 call sellers could be obligated to sell AAPL shares for the strike price -- a discount to what they'd get on the Street.

From a sentiment standpoint, AAPL is growing more accustomed to pessimism in the options pits, though most traders are employing more "vanilla" measures to bet bearishly on the stock. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), the equity's 10-day put/call volume ratio of 0.72 registers in the 92nd percentile of its annual range, suggesting option buyers have picked up AAPL puts over calls at a much faster-than-usual clip during the past couple of weeks.

On the charts, the shares of AAPL were forming a symmetrical triangle pattern -- or a series of lower highs and higher lows -- but appear to have broken lower today. From a longer-term perspective, the security has given up roughly 25% since tagging a record high of $705.07, ushered lower beneath its 10-day moving average. However, the stock could find a potential ally in the $520 region, which contained AAPL's retreat in May.

Daily Chart of AAPL since February 2012 With 10-Day Moving Average


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