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.

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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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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