Apple Options Traders Clear the Path for Higher Highs

Apple Inc. (NASDAQ:AAPL) hit a new record high, after Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRK.A) nearly quadrupled its stake

Feb 15, 2017 at 10:54 AM
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Shares of Apple Inc. (NASDAQ:AAPL) have been tearing their way up the charts -- adding 44% in the past nine months, and surpassing the $700 billion market cap earlier this week. Today, the stock hit a new record high of $136.27, last seen trading up 0.3% at $135.48, after Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRK.A) said it nearly quadrupled its stake in AAPL in the fourth quarter to 57.4 million shares. David Einhorn's Greenlight Capital also increased its exposure to the iPhone 8 parent, raising its stake by 11.8% to 5.8 million shares. What's more, Apple stock's surge has left several call-heavy strikes in the dust, suggesting the path to higher highs has been momentarily cleared of any options-related hurdles.

Apple Options Traders Have Been Relatively Absent

Taking a quick step back, outside of an impressive surge in post-earnings call volume in early February, options trading has been relatively light on AAPL. The two million contracts that currently make up call open interest are currently docked in the low 4th annual percentile, and are well below the 12-month high of 3.7 million open AAPL calls -- hit on May 20. Likewise, put open interest is comprised of 1.9 million contracts, a number that rests below 82% of all comparable readings taken in the past year. As a point of comparison, put open interest notched a 52-weak peak on Nov. 17, when there were 2.4 million contracts outstanding.

Drilling down, LEAPS traders have taken a dominant position, with January 2018 strikes accounting for seven of AAPL's 10 largest open interest positions. In fact, the 411,468 contracts collectively open at these long-term strikes make up 10% of AAPL's total open interest. The tilt toward calls is evident here, as well, with six of these seven LEAPS strikes falling on the call side.

Apple Open Interest Configurations Point to Support, Not Resistance

Additionally, the remaining three options rounding out AAPL's top 10 open interest positions are the March 125 and 130 calls, as well as the April 130 call -- all in-the-money strikes. Broadening the scope to include both weekly and standard options series with expiration dates through March 17, the heaviest accumulation of call open interest is at in-the-money strikes -- suggesting the threat of short-term options-related resistance for Apple stock is relatively low.

AAPL stock open interest through March options expiration

In fact, short-term speculators are more put-heavy toward Apple now than they've been at any other point over the past year, according to the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.44 -- an annual high. Per the chart above, a massive accumulation of put open interest rests at the underfoot 130 strike, suggesting this could contain any near-term pullbacks for AAPL shares, as the hedges related to these bets unwind over the next four weeks.

Analysts Still Have Room to Raise Outlooks on Apple Stock

Meanwhile, despite receive a barrage of bullish brokerage notes in recent weeks, optimism toward Apple Inc. (NASDAQ:AAPL) has yet to hit the euphoria stage. Of the 31 analysts covering the shares, seven still maintain a "hold" or "strong sell" recommendation. Plus, the average 12-month price target of $139.82 sits just 3.2 percentage points from current trading levels. Summing it all up, there's still room for a round of upgrades and/or price-target hikes, which could draw more buyers to AAPL's table.

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