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Apple Exuberance ‘Elephant’ in the Stock Market: Pro Traders

Again the unstoppable march higher in Apple stock has captured the attention of pro traders.

OptionMonster Jon Najarian points to the latest options activity as a sign that money pros still remain very optimistic. He tells us, “if you bought Apple $530 calls last night - you’re sitting on a 400 percent profit this morning.”

Take a look at the recent activity:

Contract Price Tues. 2/14 Return Wed 2/15
Feb 530$.68 400%
Feb 525 $1.04 300%
Feb 520$1.75250%

Source: OptionMonster


And it’s just this kind of bullish action that worries trader Josh Brown – it suggests the market is becoming irrationally euphoric. (Apple is up 25% over the past month.)

“It’s a parabolic move,” Brown says. “It's the elephant in the stock market,” he adds.

That elephant is the weighting Apple has in both the S&P and Nasdaq. "I'm talking about index construction, it's a huge factor," he says.

“A normal round of profit taking could hit these two big indexes – Apple is a huge part of the big indexes. A decent pullback - 5% lets say - could have a serious impact.”

In other words, simple profit taking could drag down not only Apple but the markets, broadly.

Trader Steve Grasso agrees that the scenario is a real possibility. “There could be a dominos. Perception is reality.”

Abigail Doolittle says charts confirm the thesis. “Technically charts suggest Apple drops to $477 pretty quickly,” she says. “It may have a little more room to run but if you have profits, take some off the table."

And looking at the market broadly, she adds that 1370 looks like a level of serious resistance. “I think the S&P is settling up for a decline of about 5-10% near term."

To confirm her thesis, she adds, “the Vix is setting up for a spike toward 30,” suggesting fear is coming back into the market.

All told, “it could create a psychology of fear.”

What do you think? We want to know!

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Trader disclosure: On Feb. 15, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Cortes is long Treasuries; Cortes is long SO; Cortes is long MO; Cortes is long DEO; Cortes is long RGR; Cortes is short EUR; Cortes is short CAD; Cortes is short Gold; Cortes is short Silver; Cortes is short XHB vs. S&P long; Cortes is short IYT vs. S&P long; Cortes is short BAC; Brown is long AAPL; Brown is long LULU; Najarian is long AAPL call spreads; Kilburg is long TLT

For Steve Grasso
Stuart Frankel & Co and it’s partners own CSCO
Stuart Frankel & Co and it’s partners own HPQ
Stuart Frankel & Co and it’s partners own MU
Stuart Frankel & Co and it’s partners own P
Stuart Frankel & Co and it’s partners own ZNGA
Grasso is long NUAN
Grasso is long S
Grasso is long XLU

For Abigail Doolittle
No disclosures

For Brian Stutland
AAPL bull option spread
BP long stock and short calls
DE long stock and short calls
EP short stock and short put and long calls as hedge
FXE long puts spread
GLD long call spread
INTC long stock and short calls
NAV long stock and short calls
SPY long put spreads
XLE long stock and short calls
MSFT long stock and short calls
MET long stock
Market maker holds hedged positions in VIX futures and options

For Scott Kesler
(SALESFORCE) I have no affiliation with any company I am speaking about in this interview.
I have no ownership interest in any company I am speaking about in this interview.

If S&P Capital IQ and/or one of its affiliates has performed services for and received compensation from the subject company during the past 12 months, then the equity analyst must disclose that fact for each subject company. The disclosure is on page 8 of the stock report above the "Disclaimers" section.

In addition to specific subject company disclosure, the following general disclosure should be made, "S&P Capital IQ and/or one of its affiliates may have performed services for and received compensation from the subject companies during the past 12 months."

For Ann Duignan

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Deere & Co. within the past 12 months.

Director: A senior employee, executive officer or director of JPMorgan Chase & Co. and/or J.P. Morgan is a director and/or officer of Deere & Co..

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For Nishu Sood

Deutsche Bank (and/or affiliates) owns 1% or more of any class of common equity securities of (DHI)

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