Apple mania has hit the options market.
On Thursday, 1.5 million contracts traded, or 177 percent of its daily average volume, making it the most actively traded single stock option today. Ninety-day average volume for Apple options is just over 878,000 according to Interactive Brokers.
Shares of the underlying stock traded above $600 per share for the first time Thursday. Traders say that speculators are scared or bullish, rushing in to buys calls, pushing the normal skew of the market out of whack. The one-sided action is making calls much more expensive than puts.
Bill Lefkowitz, an options strategist with vFinance Investments, called today’s action “crazy” saying that demand is driving call option volatility as high in these quiet markets as it was when the broader market was more volatile. Apple options “are rich and active,” he says.
Calling it a “seismic shift”, Tim Biggam, Trading Block Options Strategist notes that the skew or, so-called options “smirk” started to change earlier in the week and was even more exaggerated Thursday. “Out-of-the-money calls are now trading at a significant premium to puts” he says. This is more common in commodities than equities because in stocks traders tend to buy downside protection against violent moves lower, not higher, Biggam notes.
Biggam is taking advantage of the unusual situation by selling out-of-the-money call spreads and buying puts.
“Implied volatility (on puts) has gotten destroyed here—take a shot with cheap puts—they have never been cheaper and the stock has never been higher.”
Borrowing a line from Warren Buffett, he said: “When everyone’s fearful, be greedy and when everyone’s greedy, be fearful.”
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