(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of AAPL.)
Traders are betting shares of Apple Inc. (AAPL) rise by over 12% by the middle of July based on recent options trading, from its current price around $191.10. Apple shares have already jumped by nearly 29% over the past year, easily outperforming the S&P 500’s rise of almost 14.7%.
The stock is trying to break out based on the technical chart, and that could be adding to the bullish outlook among traders, betting that breakout happens soon.
Massive Bullish Bets
Options traders are betting rather aggressively that shares of Apple will rise to over $215 by expiration on July 20. The call options at the $215 strike price saw a good deal of volume on June 11, with nearly 42,000 contracts trading. That volume was more than five times greater than the existing open interest of just 6,200 open contracts. With the calls trading at a price of $0.20 per contract, it means the stock price would need to rise to $215.20 for the buyer of the call to break even, a rise of over 12%. (For more, see also: Why Apple's Stock May Have Peaked.)
Calls Outweigh the Puts
The long straddle options strategy is also suggesting shares may increase based on the put to call ratio. The strategy is implying the stock will rise or fall by about 4.6% from the $195 strike price, placing shares in a trading range of approximately $186.05 to $203.95. But the number of calls heavily outweighs those of the puts by a ratio of nearly 3 to 1, with almost 20,500 open call contracts to only 7,600 open put contracts.
Bullish Technical Chart in Place
The technical chart also suggests shares may rise as well, as they attempt to break out and rise above a technical resistance level at around $193. Shares of the stock rose sharply after reporting strong quarterly results on May 1, with the stock rising by roughly 17.4%, followed by a period of consolidation. If shares should be successful in breaking out, it may result in a rise of a similar proportion taking shares to roughly $219, about 14% higher than its current price. Additionally, should the stock fail to breakout, the stock has strong technical support in place at $186, and then again at roughly $180. (For more, see also: Apple's App Store Hit Record $300 Million in Sales on New Year's Day.)
Apple's stock appears to be gearing up for its next move higher based on the technical charts, and the options traders seem to be betting that breakout will happen soon.
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 holdings. Information 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.