Apple Split Windfall For Option Traders & Brokerages

As would be expected, Apple AAPL has seen a marked increase in their options activity today as a result of Apple's final stages of their split yesterday which saw holders of Apple stock as on June 2, 2014 get 6 more shares for each share they owned. As was expected, provided the same notional amount is traded pre- and post-split, then the number of contracts traded will have increased by the split value.  This means Apple contracts of roughly 450K per day pre-split will now be 3.15M contracts. As of 11:37 this morning, Apple was adding roughly 1,000 contracts to their volume for today every 30 seconds.  This is a benefit to brokerages such as E*Trade ETFC, TD Ameritrade AMTD and Scottrade for fees and the ever cherished PFOF (Payment For Order-Flow).

Steven Chubak, a Nomura analyst, explained in a recent note that "AAPL options currently trade at a rate of 450K contracts per day, or ~3% of total industry volume, a meaningful contributor overall."  When it comes to option-contract trading by retail Chubak says "Assuming retail clients trade the equivalent notional of AAPL contracts pre- and post-split, the number of contracts traded would rise 7x, and pro forma volume would increase to 3.15mn contracts per day. This would translate into industry volumes rising to 17.7mn from 15.0mn (+18% growth), which should benefit the eBrokers...".

Apple Price (Right-Axis) versus TD & E*Trade Prices (Left-Axis):

(Click To Show Detail)

The increase in volume and the attraction of more participants, Apple does have the potential to see tighter spreads and more liquidity.  Joel Elconin, the host of benzinga #Premarket Prep, commented that "size at times is fleeting.  It's hard to see if it really trades or if these are just cancelations".  One draw back to dealing with a stock that garners as much attention as Apple does is the tendency for the tape to become littered with odd lots as computers pick off every single order and attempt to draw out as many positive sub-penny trades as possible.  This action causes an unhealthy scenario and seasoned traders know how splits can attract people the day of, only to set them up to flushed out before the week ends.