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Were the Stubborn Apple Inc. (AAPL) Bulls Right?

AAPL option players stay on the bullish side

by 11/26/2012 12:56 PM
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Option players are continuing to bet bullishly on Apple Inc. (NASDAQ:AAPL - 587.88), even throughout the stock's notable relative-strength underperformance versus the S&P 500 Index (SPX). During the last three months, in fact, the stock has trailed the broader-marker barometer by more than 15 percentage points.

Despite this price action, however, call volume remains robust. First, AAPL's Schaeffer's put/call open interest ratio (SOIR) stands at 0.66, meaning call open interest in the front three-months' series outweighs put open interest by a three-to-two margin. This reading -- down from a multi-month peak around 0.97 in early October -- is lower than 90% of the past year's SOIR data. In other words, call open interest has only been more formidable 10% of the time during the past year.

Elsewhere -- specifically on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- 146 calls have been bought to open over the past 10 trading days for every 100 puts. The call/put volume ratio of 1.46 is just slightly lower than the 50-day volume ratio of 1.53. The annual percentile rating of this ratio, meanwhile, has risen from 8% (50-day) to 18% (10-day), which is still reflective of a heavy bias toward long calls.

It's possible that some of this continued call buying could be the work of short sellers looking to hedge their bearish bets. The stock recently retook control of its 10-day moving average -- as Andrea Kramer noted last week -- and this technical development could be making some bears nervous. But the number of short sellers hedging with long calls is likely not a large contingent, as short interest represents less than 2% of the stock's float.

Meanwhile, analysts have held firm to their bullish convictions. Of the 39 analysts following AAPL stock, 33 maintain a "strong buy" reading, and four list the stock as a "buy." This leaves two "hold" ratings and not a single "sell," despite the stock correcting more than 28% (and about 200 points) from its Sept. 21 high through its Nov. 16 low.

Since this nadir, however, AAPL shares have battled back 16%. Perhaps, then, it will pay off for the bulls who didn't jump off AAPL's bandwagon. The shares are up roughly 2.9% today after Citigroup initiated coverage on the stock with a "buy" rating and a price target of $675. Elsewhere, anecdotal evidence indicates that Apple Stores won the battle for Black Friday when compared to their Seattle-based rival, Microsoft Corporation (NASDAQ:MSFT).


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