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Apple Inc. (AAPL) Bulls Still Hold the Reins

AAPL call buying active on short and intermediate-term strikes

by 12/13/2012 12:42 PM
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It's no shock that Apple Inc. (NASDAQ:AAPL - 530.87) is once again the most popular play among equity options traders today. Roughly 355,000 contracts have traded in AAPL, easily outpacing Facebook Inc (NASDAQ:FB - 28.55), in second place with 193,000. AAPL call volume currently trumps put volume, 202,000 to 152,000.

Short-term traders are in control today, as all 10 most-active AAPL strikes are in the 12/14 weekly series, expiring at tomorrow's close. What's more, all of these strikes are seeing opening activity. While volume is fairly evenly split between calls and puts, the top slot is currently occupied by the near-the-money 540 call.

More than 16,600 contracts have traded on this soon-to-expire option, easily exceeding existing open interest. Implied volatility has moved notably higher, and the majority of the trades have gone off at the ask price, suggesting buy-to-open activity at this strike. For these eleventh-hour optimists to collect profits at tomorrow's closing bell, AAPL will need to be trading above $542.51, or the strike plus the average premium paid. That's a pop higher of 2.2% in just about 10 hours of trading.

Looking down the line, the largest single trade in AAPL's options pits today was an 1,800-contract block at the February 580 call, which traded at $16.65 per contract -- above the ask price at the time. The total investment in this trade was nearly $3 million, all of which is at risk if AAPL is trading south of the strike price when the options expire at the close on Feb. 15. In order for these call buyers to even break even at expiration, AAPL needs to rally to $596.65 (strike plus premium paid), a 12.4% advance from current levels.

A move of this magnitude is currently not out of the question, given the stock's historical volatility (34% on a three-month basis). The at-the-money (530 strike) straddle in the February series is currently priced at $69.75, or 13.1% of the stock price. Loosely speaking, then, the options market is pricing in a move of 13.1% -- in either direction -- in AAPL through February expiration. Meanwhile, delta for the February 580 call is currently at 34%, giving the option a one-in-three chance of finishing in the money by the end of its life.

The company has been in the news today after agreeing to put Google Maps back on its iDevices, effectively chalking up their own cartographical offering as a failed experiment -- for now. The stock has given back more than 1.5% so far today.


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