Apple weekly calls saw a lot of activity on Monday. 16,558 of the weekly 430-strike calls and 13,176 of the weekly 425-strike calls traded this morning on or around the open, with more than half of those trading on the offer price — which indicates that traders are buying these calls from market makers.
Last week, the company said that it would buy back $60 billion worth of shares over the next three years, and increased its dividend to $3.05 per share. The company also announced that it would issue debt for the first time in order to finance this capital return program, meaning that the company's $145 billion cash stock pile will remain largely intact. This is a big step for Apple, and is being seen by investors as an admission that the company is maturing out of its rapid growth phase into a company that hopes to produce smooth and consistent return on equity.
Despite missing revenue expectations and revealing that earnings per share dropped 18 percent quarter-over-quarter, the size of the capital return program, combined with Apple's modest valuation at a price-to-earnings ratio of 10 and a three percent dividend yield, appears to be enough to change sentiment on this stock.
Apple has tended to trade on momentum, and the momentum seems to have abruptly shifted last week. The stock is already up off its 2013 lows by more than 10 percent, which means that traders looking to jump on board the rally should consider limited-risk call options instead of an outright stock purchase, in case this is just a bear market rally for the stock.
Last week, when the stock turned up off its lows post-earnings, I decided to dip my feet in the water. I used an option selling strategy to maintain an upward bias in the stock. I have since rebalanced my position today, but still stand to profit should Apple shares remain above $425 over the next couple of weeks. Any pullback now should be bought, since I believe the downside risk is a lot smaller than the upside potential. Not to mention that over the next 30 years, I believe that Apple will trade above $425 per share—so why own 30-year Treasurys when I can own Apple? After all, between the stock buyback and the dividend, Apple ends up paying a higher yield than the 30-year bills.