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Options trader lays out huge bet on Apple into earnings

Options Action: Apple earnings tomorrow

As the tech teardown continues, one of the industry's marquee names is gearing up for a pivotal earnings report scheduled for after the bell Thursday.

Apple has fallen victim to the market's rapid rise in volatility, dropping nearly 9% already this year. That's a harrowing number, given that 2022 is less than one month old, but one options trader is taking a sunnier view of the situation. They're betting that the bottom is in.

"The market is currently implying a 5.3% move [in either direction], substantially higher than the 3.2% we've seen over the last eight quarters, and one trader is taking advantage of this elevated implied volatility," Tony Zhang, chief strategist at OptionsPlay, said Wednesday on CNBC's "Fast Money."

Elevated implied volatility translates to higher options contract premiums, which means that traders can generate more income by selling call or put contracts than they would in less volatile conditions.

"[They are] selling nearly 20,000 contracts of the 150, 145 and 140-strike puts that expire this Friday, collecting about $770,000 in premium, betting that the stock will be above $140 by expiration. But, if it's below $140, [they have] $290 million of stock purchase obligation," Zhang said.

This particular trade includes a sale of 9,998 contracts of the 145-strike puts, alongside 4,999 contracts of the 150 and 140-strike puts, each. It also highlights the asymmetric risk-reward profile of selling premium, especially in a volatile market. The distance between Apple's price at Wednesday's close and that 150-strike put — and the purchase obligation that comes with it — is just 6%.

Apple was trading slightly lower Thursday afternoon.