This Apple Option Saw Massive Surge In Volumes: What Could Have Happened?

In the last five days, Apple Inc AAPL shares have risen 1.65% but failed to breach the $150 level. Options data shows that the 150-strike Call option with the Dec. 9 expiry has seen the maximum volume at 118,605, according to Barchart data.

Interestingly, a significant rise in volumes has commenced since Wednesday when Apple shares zoomed along with major Wall Street indices following Federal Reserve Chair Jerome Powell’s speech where he indicated the central bank may slow the pace of rate hikes as soon as December.

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Rationale: Despite the surge, Apple shares witnessed the $150 mark as a key resistance, and professional options traders are likely to have used this opportunity to short this call at levels close to $1.75 seen on Wednesday and Thursday. Since then, the option has lost over 60% of its value and last closed at $0.67 on Monday. The option value would go to zero by Friday's market closing if Apple shares end at or below the 150-mark.

How To Trade: The best way to take this trade is by deploying a strategy known as the ‘Bear Call Spread’ where traders can short a Call option which is typically close to the resistance level of the stock while simultaneously buying another Call option — of the same stock belonging to the same expiry — which is relatively out-of-the-money.

For example, if a trader believes Apple shares will end at or below $150 by Friday, i.e. Dec. 09, they can short the $150 call option of Dec. 09 expiry, while simultaneously buying the $152.5 call option belonging to the same expiry. The $150 call closed at $0.67, while the $152.5 call closed at $0.27 on Monday.

If a person were to execute the trade at the above-mentioned levels, they would receive a net credit of $0.4 per unit. If Apple shares close at or below the $150 mark by Friday, $0.4 would be their profit per unit. This should be multiplied by the lot size of the options to arrive at the final absolute profit value.

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