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Here's How Large Option Traders Are Playing Apple Following Coronavirus Sell-Off

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Here's How Large Option Traders Are Playing Apple Following Coronavirus Sell-Off

Apple Inc. (NASDAQ: AAPL) shares closed higher by 9% Monday after falling more than 11% in the past two weeks on concerns about the coronavirus impact on sales.

Apple is one of the most widely traded companies in both the stock and options market, but several large option trades stood out on Monday morning as particularly large.

The Trades

On Monday, Benzinga Pro subscribers received 26 option alerts related to unusually large Apple option trades. Here are some of the largest:

  • At 10:52 a.m. ET, a trader sold 530 Apple put options with a $290 strike price expiring on July 17. The contracts were sold near the bid price at $25.516 and represented a $1.35 million bullish bet.
  • At 11:21 a.m. ET, a trader sold 621 Apple put options with a $265 strike price expiring on July 17. The contracts were sold near the bid price at $13.512 and represented a $839,095 bullish bet.
  • At 1:59 p.m. ET, a trader bought 500 Apple put options with a $250 strike price expiring in June 2021. The contracts were purchased at the ask price of $21.50 and represented a $1.07 million bearish bet.
  • At 2:15 p.m. ET, a trader sold 999 Apple put options with a $290 strike price expiring Friday. The contracts were sold at the bid price of $6.05 and represented a $604,395 bullish bet.

Of the 26 total large Apple option trades on Tuesday, 14 were calls were purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. The remaining 12 trades were calls sold at the near the bid or puts purchases at or near the ask, trades typically seen as bearish.

See Also: Would An Interest Rate Cut Calm The Stock Market?

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader. Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their large stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large sizes and the timing of the biggest Apple option trades, there’s certainly a possibility they represent institutional hedging.

Apple Over The Hump?

The mixed nature of the Apple option trading on Monday is representative of the mixed signals investors have been getting about Apple’s near-term outlook given the coronavirus uncertainty.

On Feb. 17, Apple said it would not hit its previous revenue guidance range of $63 billion to $67 billion in its fiscal second quarter. On Monday, Apple investors got bullish commentary from two firms: a Buy reiteration from Cascend and an upgrade from Perform to Outperform from Oppenheimer.

"Our limited checks indicate Apple will prove more resilient than others as firms worldwide navigate changing supply chains and customer demand uncertainty," Oppenheimer analyst Andrew Uerkwitz said in a note.

Bullish sentiment among StockTwits messages mentioning Apple has dropped from 81.6% on Jan. 23 to just 53%, near its lowest level since October.

 

Benzinga’s Take

Prior to the coronavirus outbreak, Apple’s underlying business fundamentals were extremely strong heading into a major 5G iPhone upgrade cycle. In that sense, whether or not the coronavirus sell-off will ultimately prove to be a buying opportunity hinges on whether or not the economic impact will be permanent or merely temporary.

Apple's stock closed Monday's session at $298.81 per share.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

 

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