Apple Options Volume Hits Fever Pitch After Negative Watch Reviews

It seems some options traders are expecting a rebound for AAPL shares

Sep 20, 2017 at 2:01 PM
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The shares of Apple Inc. (NASDAQ:AAPL) -- and many Apple suppliers -- are getting walloped today, amid negative reviews of the new Apple Watch. Specifically, the Apple Watch Series 3 -- which will begin shipping on Friday -- is facing reports of connectivity issues and battery limitations. Adding insult to injury, a Rosenblatt analyst said iPhone 8 pre-orders look weak, compared to when the iPhone 7 and iPhone 6 went on sale. Against this backdrop, AAPL stock is pacing for its worst session in over a month, and Apple options are flying off the shelves at fever pitch.

At last check, Apple stock was down 2% at $155.58 -- pacing for its worst single-session percentage loss since Aug. 10. The shares fell as low as $153.83 in intraday trading -- territory not charted since Apple stock's earnings-induced bull gap on Aug. 2 -- and could close below their 40-day moving average for the first time in more than two months. This trendline has acted as both support and resistance for AAPL in 2017.

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So far in September, Apple stock has dropped nearly 5% -- even steeper than its average September loss of 4.18%. But this month has rarely been kind to the blue chip, with Apple ending higher just 33% of the time over the past 36 years, according to recent data from Schaeffer's Senior Quantitative Analyst Rocky White.

However, it looks like options traders today are expecting a turnaround for AAPL shares in the short term. Today, roughly 500,000 Apple calls and 225,000 puts have changed hands -- twice the average intraday volume. The weekly 9/22 155-, 157.50-, and 160-strike calls are the three most active options, with possible buy-to-open action detected. "Vanilla" traders buying these calls expect AAPL to move north of the strikes by Friday's close, when the contracts expire.

There's also lots of spread activity going on. One trader might have initiated a three-way ratio spread with January 170, 180, and 190 calls, and another speculator possibly initiated a bull call spread with December 175 and 185 calls. If so, the trader bought to open 5,300 175-strike calls for $1.46 apiece, and then partially funded the position by simultaneously buying to open an equal amount of December 185 calls for $0.53 each.

The spread -- established for a net debit of $0.93 per pair of options, or about $493,000 total (net debit * 100 shares per option * number of spreads) -- will make money if AAPL stock rallies beyond $175.93 (bought strike plus net debit) by December options expiration. The highest Apple shares have ever traded was $164.94 on Sept. 1.

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