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Skepticism Surrounds Apple Inc. (AAPL)

Short sellers and option traders are wary of AAPL

by 12/4/2012 1:48 PM
Stocks quoted in this article:

Bearish bets are becoming more common for Apple Inc. (NASDAQ:AAPL - 574.94), which is in danger of ending the session beneath its 10-day moving average for the first time since Nov. 16, when the stock hit a multi-month low. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.65 ranks in the 71st percentile of its annual range, pointing to a healthier-than-usual appetite for bought-to-open puts during the past two weeks.

Echoing that trend, the weekly 575-strike put is most active today, with more than 29,300 contracts exchanged. The majority of the puts have traded at the ask price, and volume has exceeded open interest, pointing to buy-to-open activity. By purchasing the puts to open, the buyers are expecting AAPL to extend its retreat beneath the $575 marker through the end of the week, when the options expire.

Among non-weekly options, the January 580 put has been most popular during the past couple of weeks, with open interest soaring by more than 8,800 contracts. Meanwhile, the January 575 strike has seen more than 6,000 puts added during the same timeframe. Nevertheless, the January 600 strike remains home to peak put open interest among near-the-money strikes in the back-month series, with more than 24,000 puts outstanding.

Elsewhere, short sellers are also upping the bearish ante. Short interest skyrocketed more than 34% during the past month, and has soared more than 88% since early August. In fact, with roughly 21.64 million AAPL shares now dedicated to short interest, these pessimistic positions are at their highest level in years.

AAPL short interest since December 2011

It's worth noting that even though put buying has accelerated in recent weeks, the two most popular front-month options of the past 10 days were the 590- and 630-strike calls, which saw open interest swell by roughly 5,500 contracts apiece. Still, the December 700 call remains the most heavily populated of the series, with more than 20,000 contracts in residence, and the security's Schaeffer's put/call open interest ratio (SOIR) of 0.67 indicates that short-term calls comfortably outnumber puts among options with three months or fewer until expiration. Against this backdrop, it's possible that short sellers have picked up out-of-the-money calls to hedge their bearish bets against a possible short-term rebound.

At last check, the shares of AAPL have given up roughly 2% to hover just shy of $575. The stock has spent the past month beneath its 200-day moving average, which just made a bearish "death cross" with its 50-day counterpart, both lingering just north of $600. Plus, as alluded to earlier, AAPL is on pace to end beneath its 10-day trendline for the first time in more than two weeks.


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