Call Sellers Closing Out Positions in Apollo Group (APOL)

02/10/2010 12:01 am EST


Jud Pyle

Chief Investment Strategist,

Shares of education name Apollo Group Inc. (NASDAQ: APOL) closed down 65 cents, or more than 1%, to $59.28 on the day Monday, and it looks like there was some call selling to close out an existing position.

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More than 10,300 August 75 calls crossed the tape versus open interest of 10,456 contracts Monday. This morning, open interest is currently 4,000 contracts, indicating investors traded many of these options to close. The calls dropped 15 cents on the day to $2.50 per contract with a 27 delta. The August 75 calls closed with an implied volatility of 41, compared to a 30-day historical volatility of 31.

Investors who sold these calls yesterday are betting that APOL shares could close lower than $72.50 at August options expiration, which means the stock could rise 22% and the trade would still make money. For this reason, selling calls is a moderately bearish play that takes into account a slight pop in the stock.

APOL has not announced an earnings release date, but the market expects the quarterly report sometime around March 30. Call selling action such as this does not mean investors should run out and sell their APOL shares, particularly since this trade was closing risk, rather than opening new risk. However, the fact that someone no longer wanted to hold long calls could be indicating that the future upside for APOL is limited at the $70 level.

By Jud Pyle of

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