Option Trader Bets Apple Goes to $500

11/17/2011 9:00 am EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Option activity has ramped up on Apple (AAPL) recently, with volume accelerating to 1.5 times the expected level on several days in the past week.

During the course of one session, approximately 430,000 calls changed hands on the tech stock compared to about 296,000 puts. After checking out some of the week’s major block trades, it looks as though one speculator is betting on a long-term bounce for AAPL.

Specifically, the trader initiated a bull call spread by purchasing 850 July 485 calls and simultaneously selling 850 July 505 calls. Open interest rose at both strikes overnight, confirming the addition of new positions. By playing this bullish spread strategy, the trader is looking for AAPL to rise as high as $505 by the time July 2012 expiration rolls around.

Of course, perennial Wall Street favorite AAPL is no stranger to optimistic attention. During the past ten days, options traders have bought to open 1.74 calls for every put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio arrives in the 63rd annual percentile, pointing to an increased preference for calls over puts in recent weeks.

AAPL is now attempting to find its footing between the 50- and 200-day moving averages. The 50-day looks to be resistance and will need to be broken if it is to begin its march toward $500.

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Elizabeth Harrow is a contributor to Schaeffer’s Trading Floor Blog.

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