Apple Inc. (AAPL) and the $1.4 Million Bullish Bet

One Apple Inc. (NASDAQ:AAPL) option player initiated a 2:1 call ratio spread in the May series

by Karee Venema

Published on Feb 10, 2016 at 3:13 PM
Updated on Feb 17, 2016 at 10:47 AM

Apple Inc. (NASDAQ:AAPL) has explored both sides of breakeven today, but was last seen down 0.1% at $94.86. A broader tech rally hasn't proven to be much of a boost for the shares, amid supplier ARM Holdings plc's (ADR) (NASDAQ:ARMH) negative earnings reaction. Meanwhile, in the stock's options pits, calls are comfortably outpacing puts -- with one call player, in particular, betting big on an AAPL bounce over the next few months.

According to Trade-Alert, a block of 10,500 May 100 calls was bought to open for $4.40 apiece, while a block of 21,000 May 110 calls was simultaneously sold to open for $1.52 each. In other words, it appears this speculator initiated a 2x1 call ratio spread for an initial net debit of $1.36 each. Accounting for 100 shares per contract, this equates to $1.43 million.

By implementing this fairly aggressive bullish bet, the trader expects AAPL to move into the $110 region by May options expiration -- a 16% premium to current trading levels, and territory not explored since mid-December. She must be pretty confident in her forecasting skills, given the amount of risk involved with the strategy. Specifically, unlike a traditional long call spread, the additional block of sold calls is naked -- meaning she has opened herself up to unlimited losses.

Widening the sentiment scope reveals put buyers have been active in AAPL's options pits in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 50-day put/call volume ratio of 0.60 ranks in the 71st annual percentile.

Echoing this is the security's Schaeffer's put/call open interest ratio (SOIR) of 0.83 -- higher than 85% of all comparable readings taken in the past year. Simply stated, short-term speculators are more put-heavy than usual. In fact, AAPL's front-month gamma-weighted SOIR stands at 1.23, meaning near-the-money puts outstrip calls among options expiring at the end of next week.

As touched upon, the shares haven't seen the north side of $110 since Dec. 17. Longer term, Apple Inc. (NASDAQ:AAPL) has surrendered 29% since topping out at a record high of $134.54 in April -- and has put in the sixth-worst year-over-year performance among Dow components.

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