Nathan: What Apple Options Say Ahead of the iPhone Event

(This was originally published as an alert to subscribers of Action Alerts OPTIONS.)

On Sept. 3, Apple (AAPL) options volume exploded to a total of 2.3 million contracts. The stock also declined 4.2%, closing a touch off of the morning lows.

The one-day decline is significant, not just in market-cap terms, (Apple lost more than $25 billion in value), but also from a momentum standpoint. The breakdown wipes out two weeks of very positive performance, placing the stock below the physiologically important $100 level, which represented a healthy breakout of the recent high, and the all-time high made back in September 2012.

The stock was up more than 27% in 2014, dramatically outperforming the S&P 500 and the Nasdaq, which were up 8.5% and 15%, respectively. This is important as AAPL is the single largest component of the S&P 500 at 3.5% and it makes up 13% of the Nasdaq! While the stock clearly bifurcated from the broad market in 2013 (it lost value while the index gained), I would suspect that a period of underperformance for AAPL from its own all-time highs and the broad market highs might have a different effect from here on out.

Last week's momentum break is sure to draw out the old "double toppers," those technicians who will suggest that AAPL's failure at the prior high could signify an important sentiment shift, at least from a technical perspective.

What is interesting about the price action was that despite the stock's decline, which resulted from little stock-specific news, call volume nearly doubled that of puts. For a stock such as AAPL that has overwhelmingly positive sentiment, and such huge year-to-date gains, one would think that investors would be looking to protect gains instead of buying the very first dip in months. Four of the five most active options were in the weekly calls that expired Friday, with between 70,000 and 85,000 of the September 5 $100, $101, $102 and $103 calls trading, with the most active put strike 75,000 of the September 5 $99 puts.

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