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How Large Apple Option Traders Are Positioning Ahead Of Earnings

Wayne Duggan

Apple Inc. (NASDAQ: AAPL) has been one of the hottest stocks in the market in the past year, gaining 38% ahead of a highly anticipated 5G iPhone launch.

On Monday, a flurry of large Apple option trades were very mixed, suggesting smart money doesn’t quite know what to expect from Apple’s earnings report on April 30.

The Trades

On Monday, Benzinga Pro subscribers received 20 option alerts related to unusually large trades of Apple options. Here are a handful of the biggest:

  • At 9:56 a.m., a trader bought 1,017 Apple call options with a $282.50 strike price expiring on Friday near the ask price at $7.65. The trade represented a $778,005 bullish bet.
  • At 10:34 a.m., a trader sold 745 Apple call options with a $280 strike price expiring on Friday near the bid price at $8.501. The trade represented a $633,324 bearish bet.
  • At 11:04 a.m., a trader bought 500 Apple call options with a $320 strike price expiring on Jan. 15, 2021 at the ask price of $15.78. The trade represented a $789,000 bullish bet

Of the 20 total large Apple option trades on Monday morning, eight were calls were purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Ten trades were calls sold at the near the bid or puts purchases at or near the ask, trades typically seen as bearish. Two large trades were executed near the bid-ask midpoint, trades typically considered neutral.

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.

Uncertain Outlook

Analysts are expecting Apple to report March-quarter EPS of $2.27 on revenue of $54.6 billion, down 5.8% from a year ago.

Investors will likely be willing to write off much of Apple’s first-half 2020 numbers due to the global COVID-19 outbreak. However, the company’s full-year guidance and commentary could be particularly important and give investors a clearer picture about how much of a recovery Apple is expecting in the quarters ahead.

The mixed nature of Monday’s large Apple trades in the options market suggests smart money is divided about Apple earnings. According to StockTwits data, retail traders seem divided as well. Bullish sentiment among StockTwits messages mentioning Apple was 54.1% on Monday, down from 2020 highs of 80.7% back on Jan. 23.

  AAPL Chart by TradingView new TradingView.widget( { "width": 680, "height": 423, "symbol": "NASDAQ:AAPL", "interval": "D", "timezone": "Etc/UTC", "theme": "light", "style": "1", "locale": "en", "toolbar_bg": "#f1f3f6", "enable_publishing": false, "allow_symbol_change": true, "container_id": "tradingview_c944e" } ); 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. The good news for Apple bulls is that even if the COVID-19 impact is worse than feared, Apple should remain profitable and has one of the strongest balance sheets of any company in the world today.

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

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