For the first time since reporting blowout earnings last week, the shares of Apple Inc. (AAPL) have dipped below the psychologically important $600 level. There is little news driving the decline, though Apple was the target of a New York Times piece over the weekend that took aim at how the company minimizes taxes. The Times also noted, however, that many high-tech firms and other companies also use the same methods.
Technically, AAPL has pulled back to another key support level in the $580 region, which is home to the stock’s rising 50-day moving average. AAPL last logged a daily close below this trendline just before the company reported earnings last week. A pullback to this moving average could bring bargain hunters to the table in support of AAPL.
Options traders appear to be thinking the same thing, as calls are dominating activity AAPL’s options pits today. So far, nearly 270,000 of these typically bullish bets have changed hands, compared to put volume of just 182,000 contracts. The result is a single-session put/call volume ratio of 0.68.
Quite a bit of this activity has been centered on the weekly May 590 and weekly May 600 call strikes, with 3,300 contracts and 4760 contracts changing hands, respectively. With open interest well below today’s volume, it would appear that speculators are adding fresh positions at these soon-to-expire strikes (weekly May options expire at the end of the week).
While a rebound may be in the cards, a safer play for those looking for AAPL to hold its ground may be a bull put spread. At last check, the weekly May 580/575 bull put spread was bid at $1.65, or $165 per pair of contracts. The $1.65 is the maximum profit on the position, which traders will keep as long as AAPL closes the week above $580.
Disclaimer: I hold no open positions on any stocks, securities, or options mentioned above, nor do I plan on entering any positions within the next 72 hours. Use caution when trading options, and never risk more than you can afford to lose.
