“Apple Inc. (AAPL) has long been a favorite among investors in the options pits, especially when the company is surrounded by speculation and event hype. As such, it should come as no surprise that the equity has been targeted by a wealth of activity during Apple’s Worldwide Developers Conference, where the company announced new Mac pricing structures, a new iPhone 3G S, alongside several other odds and ends,” Joseph Hargett writes for Schaeffer’s Investment Research.
“In the options pits, AAPL has been bombarded by heavy activity at its June 130 and 135 puts, as well as its June 140 and 145 calls. Specifically, more than 10,000 contracts traded on each of these strikes within roughly the first hour and a half of trading today, with the June 135 put and 140 call seeing volume in excess of 20,000 contracts,” Hargett writes.
“Digging deeper into this activity, we find that today’s volume is likely related to the initiation of a larger spread position. In fact, six blocks, totaling 1,500 contracts, traded on each of the aforementioned four strikes at two minutes before 11:00 a.m. Eastern time on the American Stock Exchange (AMEX), and were marked ‘spread’ — supporting the theory that this activity was initiated by the same trader (or institution, in this case, given the size of the blocks),” Hargett writes.
“Digging a bit deeper reveals that the June 130 puts and the June 145 calls traded at the ask prices of $0.74 and $1.30, respectively, while the June 135 puts and the June 140 calls changed hands at the bid prices of $1.70 and $3.10, respectively. Given this information, it would appear that we are looking at a potential iron condor on Apple,” Hargett writes.
“What is an iron condor? Basically, this options-trading strategy involves entering a bearish call credit spread and a bullish put credit spread. Much like a credit spread, the goal is for these options to expire worthless, allowing the trader to retain the entire credit received at the initiation of the position. As a result, the goal is for these options to close out of the money, requiring the security to remain in a narrow trading range,” Hargett explains.
Full article here.
[Thanks to MacDailyNews Reader “Robert S.” for the heads up.]
