Options Traders Eye New Milestones on Apple, Valeant

Options traders have been busy targeting Apple Inc. (AAPL) and Valeant Pharmaceuticals Intl Inc (VRX)

Mar 3, 2017 at 11:44 AM
facebook X logo linkedin

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Stocks highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Two names of notable interest are Dow component Apple Inc. (NASDAQ:AAPL) and drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Here's a quick look at how options traders have been approaching AAPL and VRX shares.

Most Active Options March 3

Call Buyers See Higher Highs for Apple

Tech titan AAPL has been on a tear of late, soaring up the charts with the help of its 10-day moving average to tag a record high of $140.28 earlier this week, and last seen at $139.09. This technical outperformance has helped the stock win favor from analysts, as well as Warren Buffett. But with a 14-day Relative Strength Index (RSI) over 83 -- deep in overbought territory -- the shares could be due for a breather.

Options traders seem unfazed, however. Over the past 10 days, AAPL's June 2018 200-strike call saw the largest rise in open interest, with more than 20,500 contracts added. And data from the major options exchanges confirms plenty of buy-to-open action here, with speculators betting on a run to higher highs over the next 15 months. Among nearer-term traders, the at-the-money April 140 call led, with both buy- and sell-to-open activity detected.

Speaking more generally, call buying has doubled put buying during the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting call/put volume ratio of 1.96 also ranks higher than 85% of the last year's readings.

Meanwhile, it's a prime time to pick up premium on Apple Inc. options, as the stock's Schaeffer's Volatility Index (SVI) of 15% is docked in the low 6th percentile of its annual range, pointing to muted volatility expectations being priced into short-term strikes. Plus, AAPL boasts a Schaeffer's Volatility Scorecard (SVS) of 99, indicating the shares have made much bigger moves than the options market has priced in over the past year.

Valeant's Post-Earnings Slide Puts Multi-Year Lows Within Reach

VRX can't seem to catch a break, having slid down the charts since August 2015. The shares tumbled Tuesday after the company's generally weak earnings report, and the slip continued as a 10-K filing Wednesday led to reports of an SEC investigation into Valeant's Salix unit. Even after the drugmaker clarified that the probe dates back to early 2015 -- before Salix was acquired -- the stock has struggled. VRX is down 4.2% today at $13.17, widening its year-over-year deficit to 78.5%.

Given the technical stumbles, it's not surprising roughly 86% of tracking analysts rate VRX a "hold" or "strong sell." Short interest is also elevated, with nearly 11% of the stock's total float dedicated to these bearish bets. And options traders have been unusually pessimistic, as well. Across the ISE, CBOE, and PHLX, the equity's 10-day put/call volume ratio of 0.68 ranks in the 84th percentile of its 12-month range.

Today, VRX puts are trading at twice the usual intraday pace, with new positions likely being purchased at the weekly 3/3 13- and 13.50-strike puts, as well as the weekly 3/10 13-strike put. Buyers of the out-of-the-money puts expect the shares to fall to a fresh seven-year low by the respective expiration dates, at the close tonight and next Friday.

It's not a bad time for near-term options buyers to place bets on Valeant Pharmaceutical Intl Inc, either. The stock's SVI of 52% ranks just 7 percentage points from a 52-week low, meaning premium is currently modest, from a volatility perspective. Likewise, the SVS of 67 bodes well for the shares' potential to outperform the volatility expectations being priced into short-term options.

Stay in the loop with stocks on the move. Sign up now for Schaeffer's Midday Market Check.

Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.

Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!