Option Traders Pay Up to Play Apple Inc. (AAPL)

Apple Inc. (AAPL) puts are popular -- and pricey -- as the stock extends its August swoon

by Andrea Kramer

Published on Aug 24, 2015 at 11:51 AM
Updated on Aug 24, 2015 at 12:08 PM

Along with the majority of stocks, Silicon Valley titan Apple Inc. (NASDAQ:AAPL) was swimming in red ink again today. In fact, the equity dove into double-digit territory for the first time since October, hitting an intraday (and new annual) low of $92 -- and landing on the short-sale restricted list -- before actually turning 0.7% higher to sit at $106.50. Against this backdrop, option bears are emerging in droves, and volatility expectations are soaring. 

Since touching a split-adjusted all-time high of $134.54 in April, AAPL has surrendered 20.1% -- putting the stock in "bear market territory," going by the most common definition. The shares are roughly 3.5% lower in 2015, and have dropped more than 12% in August alone, making the stock "oversold." 

Amid the plunge, AAPL's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has ascended to 0.66 -- in the 96th percentile of its annual range. In other words, option traders have picked up bearish bets over bullish at a near annual-high clip during the past two weeks. 

Today, in fact, AAPL puts have traded at 1.7 times the average intraday pace -- and daily volume is on pace for an annual high -- though it seems some speculators are taking advantage of inflated option premiums to gamble on support. The deep out-of-the-money September 75 puts are most active, with what appears to be notable sell-to-open activity. By writing the puts to open, the traders can pocket the initial net credit as long as AAPL stays north of $75 through the close on Friday, Sept. 18, when the newly front-month options expire -- which encompasses the company's highly anticipated Sept. 9 event. 

AAPL's Schaeffer's Volatility Index (SVI) sits at a lofty 44% -- above 92% of all other readings from the past year. In other words, the security's short-term options are pretty pricey, from a historical standpoint. Meanwhile, the stock's 30-day at-the-money implied volatility jumped to an annual high of 53.4% today, underscoring elevated volatility expectations. 

On the news front, Apple Inc. (NASDAQ:AAPL) CEO Tim Cook today said the company enjoyed "strong growth" in China over the past two months. Despite major concerns about the Chinese economy, "I continue to believe China represents an unprecedented opportunity over the long term," Cook wrote in an email to CNBC. Meanwhile, Apple just confirmed a camera glitch in some of its iPhone 6 Plus devices.


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