How You Like Them Apples? – Tracking $AAPL Oct Calls

by Dan June 11, 2014 2:51 pm • Commentary

Last week, some call activity in Apple (prior to this past Monday’s 7 for 1 stock split) had the options world abuzz.  To refresh, when the stock was $641 (or about $91.57 now) a trader bought to open 20,000 of the Oct 675 calls for $21.30.  In today’s post 7 for 1 stock split terms, that is 140,000 of the Oct $96.43 strike calls for $3.04 in premium

Today, around 11am Eastern and when the stock was around $94.35 the trader sold 20,000 (in two blocks of 12,000 and 8,000) of  the NEW $96.43 strike calls (old 675) at an average of about $4.17 or in old Apple terms about $29.20.  44,000 options have traded on the day, most being sold against the 188,000 contracts of open interest in that strike.

For purposes of calculating some gains, assuming that 20k options were bought last week for $3.04, and sold today at $4.17, the trader netted a profit of about $2 million, not bad for one week’s work, but when you consider that 20k contracts were just one seventh of the position this trade still stands to have considerable gains or losses from here on out.

What I find most interesting about this trade is that at the time some traders that I spoke to considered the choice of October (catching iPhone 6 launch) and the amount of premium committed made this more than just a trade, but an investment of sorts.  So with the trader seemingly coming out of a good chunk so quickly leads me to believe this was in fact just a trade.  The trader obviously had good timing on the entry, it will be interesting continue to track the exit.



Original Post June 4th, 2014:  Apple Picking: Massive Bullish Call Activity – $AAPL

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.