Market Insights

Apple has surged this year as Wall Street anticipates a new iPhone cycle and growth opportunities in India. But yesterday options traders looked for a pause.

Check out this large transaction that occurred shortly after Monday’s open:

• 20,000 4-August 180 puts traded for $1.66.
• 20,000 4-August 170 puts traded for $0.54.
• Volume was more than 5 times open interest at both strikes, which suggests a large investor executed a put spread.

There are two possible explanations for the trade.

Credit Spread

The more bullish possibility is that the 180 puts were sold and the 170s were bought. That would be a put credit spread, letting the investor receive $1.12 now. He or she would keep that payment as profit as long as AAPL stays above $180 through expiration.

They’d have to buy 2 million shares for $1.80 below that level.

This strategy could make sense if the investor likes AAPL but thinks it needs to pause. They stand to collect some money up front, while also programming an entry if a lower level is reached. The $180 price point is also near the 50-day moving average and a peak from March 2022, which could make them potentially attractive entry points.

The credit spread additionally includes a hedge to the downside with the 170 puts. Those limit potential losses in the event of a bigger decline. Earnings are scheduled for the afternoon of August 3 (shortly before expiration) which could trigger volatility.

Bearish Put Spread

A second potential explanation is that the investor purchased the 180 puts and sold the 170s. That would be a bearish put spread, leveraging potential a drop to $170. In that case, he or she would have paid $1.12 and stands to make 793 percent from a plunge to the lower price.

The trades work because puts fix the price where a security can the sold, which can make them gain value when stocks decline. Investors can also sell puts to generate credits in spreads.

AAPL ended the session down 1.1 percent at $188.61. It’s up 45 percent this year and hit an all-time record high of $194.48 on June 30.

Options trading is not suitable for all investors. Your TradeStation Securities’ account application to trade options will be considered and approved or disapproved based on all relevant factors, including your trading experience. See Characteristics and Risks of Standardized Options. Visit www.TradeStation.com/Pricing for full details on the costs and fees associated with options.