options traders stick to apple# Stock
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NEW YORK—Despite disappointment in the stock market over Apple Inc.'s
quarterly earnings, options traders were putting on bets Tuesday that the
stock might climb over $320 as soon as Friday.
Apple reported Monday afternoon that its fiscal fourth-quarter profit surged
70%, but its stock fell 2.7% to $309.49 Tuesday as the company's gross
margin and iPad sales numbers failed to meet analyst expectations.
Nevertheless, options traders bought an elevated number of October $320
calls Tuesday priced at $1.18 that make money if the stock climbs to $321.18
by Friday. A call conveys the right to buy shares at a fixed price over an
agreed-upon time frame, and can be used to speculate on bullish moves in a
stock.
"That's a big bullish trade," said Jim Strugger, derivatives strategist at
MKM Partners. Mr. Strugger added that those buying the call options betting
for Apple to rise to $321.18 by Friday have "got a lot of conviction."
There were also bets being placed that Apple's stock might rise to $320 in a
month as traders appeared to use a strategy called a "call tree." In the
strategy, traders seemed to positioning for Apple's stock to rise above $310
and ideally be at $320 by Nov. 19 by buying November $310 calls and selling
November $320 calls and November $330 calls.
"You make the most you can possibly make on that trade at $320," Mr.
Strugger said. "You own the $310 and you sold the $320 so if at expiration
the stock is at $320, then the $310 strike call has $10 of intrinsic value."
The November $310 calls were priced at $11.19, which means they make money
if the stock rises above $321.19 by the Nov. 19 expiration. The November $
320 calls were priced at $7 and become profitable if the stock rises above $
327, and the November $330 calls cost $4.15, making them profitable if the
stock climbs above $334.15 by Nov. 19.
In turn, the November $320 and November $330 calls cost a combined $11.15,
just four cents below the price of the November $310 calls. The entire
structure of the "call tree" strategy thus cost four cents.
There was also pronounced volume in December options on network-equipment
maker Juniper Networks Inc. A "collar" trade appeared to take place in which
a trader was positioning for protection to the downside by selling December
$31 calls to buy December $30 puts. A put conveys the right to sell shares,
and can be used to guard against or speculate on drops in a stock.
The December $30 puts, which were priced at $1.57, make money if Juniper
falls below $28.43 by Dec. 17. The December $31 puts, meanwhile, traded at $
2 and turn a profit if Juniper slips to $29 by Dec. 17.
Juniper's shares fell 4.5% to $30.54 on Tuesday.
"If it gets up to $31, you've sold the call that gives someone else the
right to buy the stock," Mr. Strugger said. "By selling that you use that
premium to buy a put."
Mr. Strugger said the strategy ultimately indicates the trader is looking
for downside protection.
Given that Juniper's shares have jumped 15% over the past three months, "it'
s a good time to put this sort of trade on," Mr. Strugger added.
quarterly earnings, options traders were putting on bets Tuesday that the
stock might climb over $320 as soon as Friday.
Apple reported Monday afternoon that its fiscal fourth-quarter profit surged
70%, but its stock fell 2.7% to $309.49 Tuesday as the company's gross
margin and iPad sales numbers failed to meet analyst expectations.
Nevertheless, options traders bought an elevated number of October $320
calls Tuesday priced at $1.18 that make money if the stock climbs to $321.18
by Friday. A call conveys the right to buy shares at a fixed price over an
agreed-upon time frame, and can be used to speculate on bullish moves in a
stock.
"That's a big bullish trade," said Jim Strugger, derivatives strategist at
MKM Partners. Mr. Strugger added that those buying the call options betting
for Apple to rise to $321.18 by Friday have "got a lot of conviction."
There were also bets being placed that Apple's stock might rise to $320 in a
month as traders appeared to use a strategy called a "call tree." In the
strategy, traders seemed to positioning for Apple's stock to rise above $310
and ideally be at $320 by Nov. 19 by buying November $310 calls and selling
November $320 calls and November $330 calls.
"You make the most you can possibly make on that trade at $320," Mr.
Strugger said. "You own the $310 and you sold the $320 so if at expiration
the stock is at $320, then the $310 strike call has $10 of intrinsic value."
The November $310 calls were priced at $11.19, which means they make money
if the stock rises above $321.19 by the Nov. 19 expiration. The November $
320 calls were priced at $7 and become profitable if the stock rises above $
327, and the November $330 calls cost $4.15, making them profitable if the
stock climbs above $334.15 by Nov. 19.
In turn, the November $320 and November $330 calls cost a combined $11.15,
just four cents below the price of the November $310 calls. The entire
structure of the "call tree" strategy thus cost four cents.
There was also pronounced volume in December options on network-equipment
maker Juniper Networks Inc. A "collar" trade appeared to take place in which
a trader was positioning for protection to the downside by selling December
$31 calls to buy December $30 puts. A put conveys the right to sell shares,
and can be used to guard against or speculate on drops in a stock.
The December $30 puts, which were priced at $1.57, make money if Juniper
falls below $28.43 by Dec. 17. The December $31 puts, meanwhile, traded at $
2 and turn a profit if Juniper slips to $29 by Dec. 17.
Juniper's shares fell 4.5% to $30.54 on Tuesday.
"If it gets up to $31, you've sold the call that gives someone else the
right to buy the stock," Mr. Strugger said. "By selling that you use that
premium to buy a put."
Mr. Strugger said the strategy ultimately indicates the trader is looking
for downside protection.
Given that Juniper's shares have jumped 15% over the past three months, "it'
s a good time to put this sort of trade on," Mr. Strugger added.
