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Top Options of 2012: Apple Inc. (AAPL), Facebook Inc (FB), and BofA

BAC, FB, and AAPL were the top three targets among option buyers this year

by 12/26/2012 10:52 AM
Stocks quoted in this article:

With 2012 winding down, we thought it apropos to reflect -- not on the major players in the headlines (Lance Armstrong, Superstorm Sandy, Mitt Romney, General Petraeus, the "unimpressed" McKayla Maroney), but on the major players in the options pits. Among option buyers, the three most popular stocks of the year consisted of a blue-chip bank, a social-networking haven, and the biggest tech company in the world: Bank of America Corp (NYSE:BAC - 11.32), Facebook Inc (NASDAQ:FB - 26.88), and Apple Inc. (NASDAQ:AAPL - 516.11).

According to data provided by the incomparable Rocky White, Schaeffer's Senior Quantitative Analyst, BAC was more popular on the call side of the aisle. On average, the Dow component saw roughly 46,650 calls purchased each day, compared to just over 17,000 puts -- resulting in a buy-to-open put/call ratio of 0.37. Or, in simpler terms, option players purchased almost three times as many BAC calls than puts in 2012.

The stock's one-month buy-to-open put/call ratio is in the same neighborhood, the lowest of the three stocks. In other words, BAC option buyers preferred calls over puts by a wider margin than FB or AAPL speculators.

One-month buy-to-open put/call volume ratio for BAC, FB, and AAPL

Nevertheless, and despite BAC more than doubling in 2012, short-term speculators are still more put-heavy than usual. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.73 ranks in the 85th percentile of its annual range, suggesting near-term puts are more prevalent than average at the moment.

Echoing that, the brokerage bunch also remains wary of BAC. Currently, the security sports just nine "buy" or better ratings, compared to 17 "hold" or worse suggestions. Plus, the consensus 12-month price target on the equity rests at $10.53, representing a discount to BAC's closing price of $11.25 on Monday, Dec. 24.

Meanwhile, FB was targeted pretty evenly among both call and put buyers in 2012. On average, the stock saw around 18,000 puts and calls change hands each day, resulting in a buy-to-open put/call ratio of 1.00.

During the past couple of months, though, calls have emerged as the options of choice, as evidenced by the chart above. Furthermore, the security's SOIR now stands at 0.84 -- the lowest reading on record. This growing appetite for long calls coincides with FB's rise on the charts, with the Wall Street freshman adding 43% since tagging a November low of $18.87.

However, despite outperforming the broader S&P 500 Index (SPX) by more than 34 percentage points during the past 60 sessions, not all analysts have capitulated to the bullish camp. In fact, nine out of 29 analysts maintain "hold" or worse recommendations, and the average 12-month price target of $30.24 implies expected upside of just 12.3% to FB's closing price of $26.93 on Monday.

Finally, AAPL was the most targeted equity among option buyers this year, with an average daily volume of about 87,350 contracts. Digging deeper, most of the action crossed on the call side of the tape, with about 55,000 calls and 32,400 puts exchanged each day, resulting in a buy-to-open put/call volume ratio of 0.59 -- just under its one-month ratio.

More recently, however, AAPL puts have been picking up steam. 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 0.70 ranks in the 83rd percentile of its annual range. Or, simply put, option buyers have picked up AAPL puts over calls at a faster-than-usual pace during the past couple of weeks.

Of course, the affinity for bearish bets has increased in parity with AAPL's recent fall from grace on the charts. Currently, the iPad maker is flirting with the $516 neighborhood, down roughly 27% from its record high of $705.07 tagged on Sept. 21. Still, analysts remain hopeful, with AAPL boasting 32 "strong buys" and four "buy" endorsements, compared to two lukewarm "holds" and not a single "sell" or worse rating.


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