How Options Traders Are Betting On Apple Ahead Of Q1 Earnings

Apple Inc. AAPL was one of the hottest stocks in the market in 2019, gaining 89% and reaching a $1.3 trillion market cap.

On Tuesday, a flurry of large Apple option trades were more bullish that bearish, suggesting Apple may have some good first-quarter earnings numbers on the way on Tuesday afternoon.

The Trades

On Tuesday, Benzinga Pro subscribers received 34 option alerts related to unusually large trades of Apple options. Here are three of the biggest:

• At 9:42 a.m., a trader sold 658 Apple put options with a $310 strike price expiring on June 19 at the bid price of $19.25. The trade represented a more than $1.26 million bullish bet.
• At 10:12 a.m., a trader bought 1,001 Apple call options with a $330 strike price expiring on Sept. 18 near the ask price at $19.599. The trade represented a more than $1.96 million bullish bet.
• At 1:08 p.m., a trader bought 2,246 Apple call options with a $320 strike price expiring on Feb. 21 near the ask price at $9.165. The trade represented a more than $2.06 million bullish bet.

Of the 34 total large Apple option trades on Tuesday morning, 22 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 three largest trades of the morning were all bullish.

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.

Earnings Beat Ahead?

The large option trades in Apple come ahead of the company’s fiscal first-quarter earnings report expected out after the close on Tuesday.

Consensus analyst estimates for the quarter are EPS of $4.55 on revenue of $88.5 billion. Looking ahead to the fiscal second quarter of 2020, analysts are calling for EPS of $2.82 on revenue of $62.4 billion.

Apple has a long history of volatile earnings reactions, and large option traders may be expecting more of the same this week. Despite concerns over the impact of the coronavirus on the Chinese economy, Apple shares have rallied another 9.1% to new all-time highs in the month leading up to Tuesday’s earnings report.

Chart courtesy of Trading View.

Benzinga’s Take

Many investors are expecting Apple to release its first 5G iPhone in 2020, which could be a major potential upgrade catalyst for current iPhone users around the world. Given Apple’s huge 2019 gains, market expectations for the near-term are clearly high, but all the bullish option trades on Tuesday suggest smart money sees more upside ahead for Apple this year.

Do you agree or disagree with these predictions? Email feedback@benzinga.com with your thoughts.

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