Apple options earnings trades point to an unusually large move

Apple options earnings positioning has become unusually active before the company’s Thursday report, with traders paying heavily for calls as the stock trades close to a record. Of the $590 million in Apple options premium that changed hands Friday, $442 million was linked to calls, according to SpotGamma, while ThinkOrSwim data showed almost 560,000 calls bought against 332,000 puts.

The options market is also pricing a larger-than-normal earnings reaction. Apple options imply an almost 4% move after the report, compared with an average historical swing of about 1% over the past year, according to Cboe LiveVol data cited by CNBC.

The setup comes as Apple has become a rare source of strength among the largest U.S. stocks. CNBC reported that the shares have gained 20% from their late-June low after moving little for seven months, leaving Apple less than $2 below an all-time high set just over a week earlier. It is the only company among the 10 largest in the S&P 500 trading near a record, according to CNBC, while the broader U.S. equity market has been in a two-month slump and bond yields have reached new highs.

What are Apple options signaling before earnings?

Call options give buyers the right to purchase shares at a set price, so heavy call activity is often read as demand for upside exposure, though individual trades can also be hedges. An implied move is the market’s estimate, derived from options prices, of how far a stock may rise or fall over a given period.

Friday’s largest Apple options trade was a new $2.6 million position in mid-August $280 calls, according to CNBC. The trade had a delta near one, meaning the option would be expected to move almost dollar for dollar with Apple’s shares and can function as a substitute for owning the stock.

Open interest also shows concentrated positioning around near-term levels. For options expiring this Friday, the $320 strike had the largest open interest, with 13,000 calls and 5,000 puts, according to BarChart data cited by CNBC. That positioning may indicate traders see last week’s lows as an important area, even if the earnings release does not drive a further rally.

The most actively bought Friday-expiring Apple contract by volume on Friday was the $300 put, with 7,500 contracts traded for a combined $374,000 in premium, according to SpotGamma. The next most active was the $340 call, with 5,000 contracts and $2.3 million in premium.

The $340 call was priced at $4.25 at Friday’s close, CNBC reported. At that price, buyers would need Apple shares above $344.25 by expiration to break even, a gain of about 3.4% from Friday’s closing level and above the stock’s $335 record high.

Nigam Arora, founder and author of The Arora Report newsletter, told CNBC that he sees a “fairly high” probability Apple could help steady the market this week. He said investors view Apple as more defensive than some large technology peers because it has not committed hundreds of billions of dollars to artificial intelligence capital spending.

This story draws on original reporting from CNBC.