Apple Inc. (AAPL) shares have come under pressure during the past week, falling nearly 7 percent between June 9-15. Short interest rose sharply through May 31 to 63.20 million shares, enabling many short sellers to post handsome profits from the downdraft of Apple shares.

Now investors are debating where Apple's stock will move next. We took a close look at the options market to give us a clue, and it indicates that Apple's shares are likely to move sideways - or may fall further.  AAPL Short Interest Chart

AAPL Short Interest data by YCharts

Barclays recently argued that Apple shares are near peak valuation and the expectations for sales of the iPhone 8, at $1,000 a pop, may be unrealistic. This is a view shared by a number of analysts.

But indicators in the broader options market give us important clues about the future direction of Apple shares. Let's take a look at the strike price as of June 16. The price with the most open interest is the $150 strike, followed by the $155 and the $145 through January of 2018. We can see there is a relatively uneven distribution that seems to be heavily weighted to lower levels. 

Apple Open Interest Distribution

(Interactive Brokers TWS)

Additionally, let's go out further and look at the open interest for January 2018 expiration. There, we can see that the $140 calls have the largest open interest with nearly 71,000 contracts open, followed by almost 53,000 at the $150 strike price, and approximately 29,000 at $170. On the put side, the $120 strike has nearly 52,000 contracts open, followed by 42,000 open at $110, and 40,000 at $105. The far dated option market seems to indicate the bets are placed more heavily for a stock price at current levels - or even lower. 

Apple Technical Chart

The technical chart above also seems to indicate there could be some short-term bearish risk to the stock. The stock is currently sitting at a very critical level. A break of this support level could send the stock falling back to the gap created in February around the 200-day moving average at $127. The stock's relative strength Index indicates, nonetheless, that the stock is currently in oversold territory. 

The recent surge in short interest and the lopsided distribution of open interest in the Apple option market seem to indicate investors are not looking for the stock to rise significantly from current levels, with the greatest risk to the downside. 

We already know that Apple is heavily tied to the iPhone 8's success and that margins may be razor thin. It would seem at this point the market is betting on a disappointing iPhone results. (See: Apple's Curse May Be The Success of The iPhone.)

So the options market offers little good news for Apple's bulls and, in fact, indicate stock investors may feel more pain ahead.

Michael Kramer is the Founder and Portfolio Manager of Mott Capital Management LLC, a registered investment adviser. 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 recommendation made during the past twelve months. Past performance is not indicative of future performance.

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