Apple Option Trader Makes $3M Bet On 10% Pullback

Apple Inc. AAPL shares hit new 52-week highs this week on reports the iPhone 11 is performing extremely well, especially in China.

On Tuesday, a flurry of large Apple option trades were more bearish than bullish, suggesting smart money is expecting Apple shares to take a breather in the coming months.

The Trades

On Tuesday, Benzinga Pro subscribers received 21 option alerts related to unusually large trades of Apple options. Here are a handful of the biggest:

• At 10:14 a.m., a trader bought 1,001 Apple put options with a $265 strike price expiring on Jan. 17, 2020 above the ask price at $7.565. The trade represented an $757,256 bearish bet.
• At 10:19 a.m., a trader bought 595 Apple call options with a $310 strike price expiring in January 2021 near the ask price at $13.701. The trade represented an $815,209 bullish bet.
• At 10:20 a.m., a trader bought 5,587 Apple put options with a $245 strike price expiring on Feb. 21, 2020 near the ask price at $5.456. The trade represented an $3.04 million bearish bet.
• At 12:31 p.m., a trader sold 4,000 Apple put options with a $240 strike price expiring on Jan. 17, 2020 near the bid price at $2.351. The trade represented a $940,400 bullish bet.

Of the 21 total large Apple option trades on Tuesday morning, nine 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. The $3.07 million put purchase has a break-even price of $239.54, implying roughly 9.9% downside over the next three months.

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 larger 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 size of the largest Apple trades and the fact there were so many large trades make it likely that at least some of the trades were institutions hedging against large positions in Apple stock.

Apple Expectations Too High?

The large option trades in Apple come after Bloomberg reported strong iPhone 11 sales in the months of October based on data from the China Academy of Information and Communications Technology. After China sales have struggled in recent quarters, the data suggests Apple sold 10 million iPhones in the two months, a 6% increase from a year ago.

Benzinga’s Take

From a fundamental standpoint, the early iPhone sales data from China and elsewhere around the world is extremely positive for the company. However, with the stock now up 68.5% year to date, some large Apple options traders may simply be betting market expectations have gotten a bit too high for the iPhone 11 at this point.

The mixed nature of the Apple trading may also be a sign traders are conflicted over the bullish outlook for Apple but the increasingly uncertain global economic outlook. If the global economy tanks, there’s likely nothing Apple can do to keep its shares afloat no matter how well it executes.

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

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