Last updated: January 19, 2011 12:21 am

Opinions split over surge in Apple bets

Bearish bets on Apple’s stock price surged last Friday, the final day of trading before the company announced that Steve Jobs, its chief executive, was to take a medical leave of absence.

Apple’s shares have more than tripled in value in the past two years, and traders said the action could have reflected an attempt by investors to protect themselves ahead of the group’s earnings report on Tuesday.

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However, the activity also raised questions among traders over whether news about Mr Jobs’ health had leaked and could stir the debate over Apple’s obligations to disclose information about its chief.

Apple put out a statement about Mr Jobs on Monday, when US markets were closed for the Martin Luther King holiday.

The shares closed at $348.48 last Friday, when there was heavy buying of options giving investors the right to sell at a “strike price” of $320 a share until January 22. The value of options rise as the share price falls towards the strike price and then below.

The number of outstanding positions in such options, known as “open interest”, rose by 6,091 to 40,996 on Friday, representing the biggest one-day jump since the contract began trading a little more than a year ago.

“That’s the kind of volume we would normally see with a put option closer to the under­lying price of the stock,” said Ryan Dietrich, a Schaeffer’s Research strategist.

On Tuesday, Apple’s shares fell as much as 6.5 per cent to $326 in early trading, recovering to close out the day at $340.65, down 2.3 per cent. That tumble in the share price sharply boosted the value of put options with the $320 strike price. They rose more than 800 per cent to a high of $5 at one stage, up from Friday’s close of 54 cents, before closing at $1.40.

“If they were buying these puts on Friday, they made a good chunk of change selling them today,” said Caitlin Duffy, analyst at Interactive Brokers.

The Securities and Exchange Commission declined to say whether it was investigating.

Gail Osten, a spokeswoman for the Chicago Board Options Exchange, said its department of market regulation reviewed unusual trading activity but declined to comment on Apple options. She also would not comment on behalf of the Options Regulatory Surveillance Authority, which co-ordinates insider trading surveillance and investigations.

Trading in call options, which rise in value with a higher underlying share price, was heavy on Tuesday. Some investors, expecting better earnings, saw the drop in Apple’s share price as a buying opportunity.

“On the whole, calls are far more active than puts and it does look like many options traders are taking bullish stances on Apple,” said Ms Duffy.

Apple was up 1.6 per cent to $346 a share in after-hours trading on Tuesday.

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