Apple Options Traders Bet Big On 15% Share Gain

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Apple Inc. (AAPL) ptions traders are betting the stock will rise by more than 10 percent by June. Apple shares have been on a bit of a rollercoaster ride to start 2018, as concerns over weak demand for the iPhone X continue to swirl, while a broader market sell-off sent the shares reeling. 

Despite the rollercoaster, options trader are bullish on Apple, and some even see the stock rising by more than 15 percent to over $200 by June. That optimistic outlook can likely be attributed to expectations of strong earnings growth, with analysts looking for earnings to grow by 25.5 percent to $11.55 in fiscal 2018, while revenue is expected to rise by nearly 15 percent to $263 billion, according to YCharts.

(Interactive Brokers)

Bullish Outlook

The long straddle options strategy using the $175 strike price set to expire on June 15 suggests that Apple could rise or fall about 10 percent. That would put the stock in a trading range of $157 to $193, with the cost to buy one put and one call at about $18. 

The number of calls massively outnumbers the puts by a ratio of nearly 2.5 to 1, with 26,600 open calls contract to only 10,100 put contracts. This suggests that more bets are being placed on Apple stock rising over the next few months. (See also: 3 Reasons Why Apple's Shares Will Outperform.)

Calls Heavily Favored

The $170, $175, and $180 calls options have an open interest value approaching $65 million. By comparison, the $175, $170, and $165 puts have an open interest value of about $23 million. The contrast between the puts and the calls suggest that traders are betting more heavily that Apple shares will continue to rise. 

A Rise Over $200

Some are even betting that the stock will top $200 by June 15. The strike price for $200 has an open interest of nearly 41,000 contracts and are trading at a price of $1.55. 

Apple shares would need to trade to over $201.55 just for those options to break even, an increase of 15.8 percent from its current price around $173.80. This is a big wager, nearly $6.5 million, considering the expense of the options and how far out of the money the options are from Apple's current price.  (See also: Apple's World Smartphone Market Share Above 50%.)

Despite all the ups and downs in Apple's stock over the past few weeks, options traders continue to have a positive outlook.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance. 

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