Is the Worst Yet to Come for Apple Inc. (AAPL)?

Apple Inc.'s (AAPL) technical picture isn't pretty, and things could turn ugly if bullish holdouts hit the exits

by Alex Eppstein

Published on Aug 4, 2015 at 11:08 AM
Updated on Aug 4, 2015 at 11:08 AM

Apple Inc. (NASDAQ:AAPL) closed below its 200-day moving average yesterday for the first time since September 2013, capturing the attention of Wall Street. And things aren't any better today. In fact, losses are continuing to mount at midday, with the stock down 4.3% at $113.35 -- bringing it firmly into "correction" territory, down almost 15% since its most recent high of $132.97 from July 20. Considering the stock is flirting with six-month lows, it's no surprise that negativity has been growing in AAPL's options pits -- and a turning of tides elsewhere on the Street could exacerbate selling pressure on the shares.


Specifically, during the last 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has amassed a put/call volume ratio of 0.69 -- higher than all other readings taken in the last year. In other words, speculators have never bought to open AAPL puts over calls at a faster rate, looking back 12 months. Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.81 ranks in the 74th annual percentile, suggesting short-term speculators are more put-skewed than usual.

But not everyone has taken a glass-half-empty approach. Indeed, there are some bullish holdouts among the options trading crowd -- and, from a contrarian perspective, this could spell trouble for the underlying. Specifically, heavy call open interest at the overhead August 120 and 125 strikes -- which have seen over 28,000 and 57,000 contracts, respectively, bought to open in the last three months -- could stifle potential rebound attempts between now and front-month expiration.

Outside of options land, 20 of 33 analysts rate AAPL a "buy" or better, with not a single "sell" to be found. What's more, the stock's consensus 12-month price target of $147.72 sits in uncharted waters -- and at a 30% premium to current levels. This leaves the door wide open for future downgrades and/or price-target cuts.

AAPL could soon see an uptick in short selling, too, which could apply further pressure. A miniscule 1.1% of the stock's float is sold short, which would take less than two days to cover, at typical volumes. Should these bears wake up from hibernation, Apple Inc. (NASDAQ:AAPL) could get mauled.

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