Apple Picking: Massive Bullish Call Activity – $AAPL

by Dan June 4, 2014 12:00 pm • Commentary

Last night on CNBC’s Fast Money I highlighted a very bullish roll in near dated Apple calls:


Yesterday, shortly after the open, when Apple was trading around $631, a trader sold 8300 July 600 calls at 37.90 to close and bought 10,250 July 680 calls for 4.10 to open. Trader took in about $31 million in premium, and spent about $4.2 million to play for further upside with break-even up almost 8% on July expiration.

And then just a bit ago,  another trader (maybe the same, who knows) sees more potential upside, as two huge options trade printed shortly after the open within a minute of each-other when the stock was about $641:

-Buyer of 20k of the Oct 675 calls for $21.30

-Buyer of 10k of the Oct 700 calls for $14.75

The first trade is a premium outlay of over $42 million, and the second trade is an outlay of nearly $15 million, a massive amount of premium for any investor.  In other words, if AAPL closes below $675 by October expiration, then this trader will lose over $57 million.

The break-even on the Oct 675 call would be $696.30, and on the Oct 700 call, it would be $714.75.  In other words, this call options buyer would only make money if AAPL made a new all-time high above $705 by October.  At this juncture, that’s about 10% away on the upside.

The AAPL stock split is next week (June 9th), and the stock is trading at an important technical spot, as $644 was the high back in April 2012:

AAPL daily chart, Courtesy of Bloomberg
AAPL daily chart, Courtesy of Bloomberg

Perhaps part of the reason for the options trade is someone views call options here as a decent alternative to owning AAPL stock, given that implied volatility is still near 2 year lows even after the strong run since earnings:

30 day implied volatility in AAPL, Courtesy of Bloomberg
30 day implied volatility in AAPL, Courtesy of Bloomberg

The cheap level of options pricing on one hand and the large rally since mid-April (more than 20%) on the other hand is certainly a rare situation.  Of course, this one buyer alone moved options pricing a bit higher, as can be seen by the intra-day graph of implied volatility for the Oct 675 calls:

AAPL Oct 675 call implied volatility, Courtesy of Bloomberg
AAPL Oct 675 call implied volatility, Courtesy of Bloomberg

Add it all up, and these call buyers have expressed a view that they view owning AAPL calls as an attractive alternative or addition to owning AAPL stock on its own.