Here's How Large Apple Option Traders Are Positioning Following Coronavirus Outbreak

Apple Inc. AAPL shares are are up 84.6% in the past year on optimism about the company’s growing Services segment and the potential 5G smartphone upgrade cycle.

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 21 option alerts related to unusually large Apple option trades. Here are some of the largest:

• At 9:36 a.m. ET, a trader sold 1,430 Apple put options with a $320 strike price expiring on Friday. The contracts were sold near the bid price at $13.577 and represented a $1.94 million bullish bet.
• At 9:50 a.m. ET, a trader bought 1,166 Apple call options with a $300 strike price expiring on March 20. The contracts were purchased near the ask price at $17,839 and represented a $2.08 million bullish bet.
• At 9:58 a.m. ET, a trader sold 1,180 Apple call options with a $300 strike price expiring on Feb. 21. The contracts were sold near the bid price at $14.847 and represented a $1.75 million bearish bet.
• At 12:02 p.m. ET, a trader sold 11,595 Apple call options with a $300 strike price expiring on Feb. 14. The contracts were sold at the bid price of $14.10 and represented a $2.24 million bearish bet.

Of the 26 total large Apple option trades on Tuesday morning, 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.

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.

Room To Run For Apple?

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.

On Jan. 28, Apple reported first-quarter revenue and earnings well above consensus analyst expectations and issued better-than-expected second-quarter revenue guidance as well. While Apple’s fundamental business seems to be firing on all cylinders, there’s no question the recent coronavirus outbreak in China is a major overhang for the stock. In fact, on Monday, TF International Securities analyst Ming-Chi Kuo cut his second-quarter iPhone shipment guidance by 10% due to the coronavirus disrupting Apple’s supply chain.

Bullish sentiment among StockTwits messages mentioning Apple has dropped from 81.5% on Jan. 23 to as low as 68% on monday, its lowest level since Dec. 23.

Benzinga’s Take

Assuming the Wuhan coronavirus will me mostly old news within six months like its coronavirus predecessor SARS, Apple’s strong underlying fundamental metrics suggest the recent dip is a long-term buying opportunity. However, there is understandably no clear consensus in the option market about where Apple shares are heading in the near-term.

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

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