iPhone Option Trades: “Sell The News” Strategy (AAPL)

Everyone knows how to make a bet on a stock going higher.  Most know how to make bets against a stock ("Sell the News") with short selling or buying put options.  But there are ways to leverage the bets, and it is obvious that with the tight trading range in Apple (AAPL-NASDAQ) traders are in a battleground scenario with bets for and against the stock.

Apple is trading right around its $120.00 strike price for the options contract since.  Today’s trading range was only $120.00 to $122.49 and the trading since June 15 has only had a trading range of $118.72 to $125.18.  Some traders have been making a "Sell The News" bet that too much hype has been put into the iPhone.  This can be done by a classic short sell of the underlying stock, or it can be done on a less risky basis with Put Options.  On a leveraged basis it can be done selling Call Options, and on an even more leveraged basis it can be done with a combination of the scenarios.

The most classic bet without just short selling is Buying Put Option, and you can see what the trading was in these options Thursday.  What is odd is that the bets haven’t been all that strong compared to any other normal month if you consider the magnitude of the iPhone.  As a reminder, open interest is measured from the end of the prior trading day.

JULY PUT OPTIONS
STRIKE    LAST    VOL.    Open Int.
100.00    $0.20    1,240    20,941
105.00    $0.42    2,862    33,445
110.00    $0.97    9,508    56,481
115.00    $2.10    6,289    45,489
120.00    $4.10    6,204    34,530

The gutsier bet is selling Call Options.  This is similar in ‘unlimited downside’ just like short selling because in theory a stock can run up and up.  Here is the volume in the slightly in the money calls and out of the money calls:

STRIKE    LAST    VOL.    Open Int.
115.00    $8.20    1,734    32,721
120.00    $5.00    13,138    58,658
125.00    $2.85    24,450    62,264
130.00    $1.60    16,291    54,759

The truth is that Friday will be the real options trading day.  Not only that, but the real "sell the news" analysis won’t really be known until the weekend and Monday because the iPhones are going on sale at 6:00 PM local time on Friday in each market.  That means stock traders are out of the actual know until Monday. 

Jon C. Ogg
June 28, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.