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What Apple Option Flow is Saying

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Apple (AAPL) will be in focus today when it hosts an event at 1:00 ET. The company is expected to unveil iPad 5 and Mini-iPad 2. Earnings will come into focus next week when it reports the afternoon of October 28. The stock moved to multi-month highs yesterday ahead of these events and is up 24% to $521.36 since the company last reported results. Options on AAPL have seen brisk trading and implied volatility is moving higher as well.

431,000 calls and 202,000 puts traded in Apple yesterday. The stock was moving to its best levels since January and a lot of the focus was on Weekly options that expire Friday. In fact, 42% of the flow was in the 10/25 Weeklys and only 8% in the 11/1 Weeklys, suggesting that investors might be more focused on the near-term iPad event today rather than earnings next week. Weekly 520, 525, and 530 calls (all expiring 10/25) were the most active options in AAPL Monday.

Meanwhile, implied volatility in AAPL options is moving higher along with the share price. (VXAPL), which is the CBOE Volatility Index (VIX) for AAPL options, is up from the low 20s in mid-August to a multi-month closing high of 34.22 yesterday. The increase in the implied volatility in Apple options over the past week stands in stark contrast to the trend in the broader market, where most measures, like VIX, have collapsed since Congress ended the government shutdown and extended the debt ceiling. In addition, as we can see from the chart above, implied volatility skew (meaning, the premium of puts over comparable calls) in Apple options has fallen sharply lately, in fact upside calls have become more expensive relative to downside puts across all expiration months, except for the longer-dated 2015 and 2016 options.

Suffice it to say, bullish sentiment in AAPL seems quite high heading into today's event and we also saw higher than normal volumes in the mini-Apple options on Monday as well. 26,000 contracts traded, which is more than double the average daily volume. Given the higher volumes, the increase in overall implied volatility, the decrease in skew, and the big move in shares since the last earnings report, it appears that investors are setting the bar quite high heading into today's event and next week's earnings. Will AAPL deliver?

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