Apple Inc. (AAPL) Speed Bumps Don't Spook Option Bulls

Apple Inc. (AAPL) stock is facing off against resistance, yet option players remain devotedly bullish

Nov 29, 2016 at 1:34 PM
facebook twitter linkedin

Apple Inc. (NASDAQ:AAPL) is in the spotlight today, after UBS analyst Steven Milunovich downwardly revised his procurement estimates, citing data that indicates near-term weakness for iPhone shipment growth. So far today, AAPL shares are fractionally higher at $111.69, after earlier dropping more than 1%. Meanwhile, in AAPL's option pits, bullish bettors could find themselves in trouble as the stock struggles to overcome a speed bump.

AAPL is down roughly 7% since touching an annual high in October, and the shares are staring down the $111-$112 region, which acted as support back in September, and represents a 50% retracement of AAPL's recent post-earnings drop. What's more, the stock's 30-day moving average has descended into the area, which could act as an added layer of resistance.

In the AAPL options pits, option players have been fairly bullish in recent months. AAPL's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 1.93 shows almost two calls bought to open for every put, a reading that sits in the 86th percentile of AAPL's annual range. If some of these bullish bets begin to unwind, it could serve as headwinds against AAPL shares.

Drilling down, AAPL calls are once again favored over puts, about 152,000 to 100,000, respectively. All but three of today's top 10 most active options are calls. Specifically, AAPL's December 115 call is today's most active option, with a block of 13,600 contracts sold to open at 33 cents each. It appears this position could be a part of a cautiously bullish ratio spread, where the trader bought to open 6,800 December 110 calls for $0.33 apiece, and partially funded the position by selling to open 13,600 (twice as many) December 115 calls, for a net debit of $1.35 per spread ($2.01 - [$0.33 x 2]). This position will profit if AAPL stays between $111.35 (bought call strike plus net debit) and $115 (sold call strike) during the options' lifetime.

Now seems to be an opportune time for AAPL option buyers. AAPL's Schaeffer's Volatility Index (SVI) of 18% sits in just the 7th percentile of its annual range, indicating near-term option players are pricing in relatively muted volatility expectations. Likewise, AAPL's Schaeffer's Volatility Scorecard (SVS) is at 100, indicating AAPL has tended to exceed volatility expectations over the last 12 months.

It isn't just option players that seem optimistic toward Apple Inc. (NASDAQ:AAPL). Short interest is down 20.6% over the last two reporting periods, and shorted shares now account for a mere 0.8% of AAPL's float, which would take just over a day of trading to cover, at the stock's average daily trading volume. This relatively minimal amount of short interest hints that there may not be much sideline cash available to add fuel to AAPL's fire. Elsewhere, 27 of 33 analysts rate the shares a "buy" or better. A round of negative analyst attention could pressure AAPL shares lower.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 



Special Offers from Schaeffer's Trading Partners