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Someone is about to be proven very wrong on Apple

Sour green or red delicious?

Analysts and traders are extremely far apart on shares of Apple. Over the past six months, shares of the tech giant have fallen more than 25 percent, badly underperforming the S&P 500. And on Tuesday, Apple shares dipped below $96.

Meanwhile, analysts' average price target on shares of the stock is $140, according to data provider FactSet.

Some, like Goldman Sachs, see the stock even higher; that bank's analyst has a price target of $155. And Piper Jaffray's well-regarded Gene Munster says the stock is going to $179, which would almost be a clean double from current levels.

Nothing in that ballpark is seen as particularly likely right now, as a check on the options market tells us.

Read MoreMore Apple indicators? Suppliers cut forecasts

One benefit of examining options is that the derivatives contracts hold a great deal of information about traders' expectations.

In this case, we can get a rough estimate of the implied probability of Apple rising to $140 within the next year by looking at the "delta" of the 140-strike call options expiring next January. This is a measure that tells us how much the price of the option tends to rise for every dollar that Apple shares rise.

Because it tells us how sensitive the option price is to moves in the price of the underlying stock, delta is also a rough measure of the expected percentage chance of that given option contract paying off. (Think about it this way: If traders are sure that Apple will eventually rise about that option price, for each dollar that the stock rises, the option value will rise the same amount; if traders are sure that Apple will never rise above that option price, that option value will never move, no matter how high the stock rises; any other base expectation will generate a move between $0 and $1.)

Right now, the delta of the January 2017 140-strike call is 0.11, or 11. That implies an 11 percent chance that Apple will rise to or above $140 within a year.

Put another way: When traders are assessing the situation that analysts apparently see as most likely, they conclude there's only a 1-in-10 chance of that happening.

Or, yet another: When it comes to the world's biggest public company, either traders or analysts are about to be proven dramatically, dramatically wrong.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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