Behind the $5.5 million bet against Apple

Apple shares have come under serious pressure in the past month. And one big trader appear to be betting on more downside for the tech giant.

In a big Thursday options trade, one trader appeared to bet $5.5 million that Apple is going even lower.

Specifically, the trader bought 7,255 January 112.86-strike put contracts at a price of $7.55 per share (for a total outlay of $5.48 million, given that each contract controls 100 shares).

Since this trade will only make money if Apple shares fall below $112.86 by more than the $7.55 laid out, it implies an expectation that Apple shares will fall below $105.31 by January—or 8.5 percent lower than current levels.

Read MoreRoger McNamee: There's concern about Apple, but ...

Of course, while the trade is public, the intentions of the trader and the content of the firm's portfolio are not.

In fact, Dennis Davitt of Harvest Volatility Advisors conjectures that the big put purchase is actually one leg of a bullish trade.

"I personally believe that you should buy Apple stock, and I think you should buy these puts with it," Davitt said in a Thursday "Trading Nation" segment. "You're protected, you can sleep at night."

In other words, if Apple rallies back to its mid-$130s highs, one will still enjoy a healthy profit even after paying for these puts. Meanwhile, if disaster strikes and Apple falls much further, one's position will be protected.

"It's like if you buy a new house and you need to make sure you buy a big insurance policy that goes with it," Davitt added.

"We're not a really high-conviction buyer or seller on it, so hedging your position makes a lot of sense for us," commented Oppenheimer technical analyst Ari Wald on Thursday.


Trades to Watch

Trader Bios


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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more