Stupid 'Rich' Skew in Apple, Greed Breaks Things
Comment of the Day

September 03 2020

Commentary by Eoin Treacy

Stupid 'Rich' Skew in Apple, Greed Breaks Things

This article from the BearTrapsReport may be of interest to subscribers. Here is a section:

Jan $180 Strike Calls costs $4
Jan $80 Strike Puts costs $1

*Both options are $50 out of the money, approx data, BUT it is nearly 3x more expensive to buy upside risk in AAPL equity. Downside protection normally costs more than upside risk participation, NOT today. What does this mean? One large buyer has made a colossal splash in the market and the scent of greed has drawn thousands of other market participants into the dangerous game. Several clients in our institutional chat on Bloomberg have cited SoftBank as the original size buyer. We have NO IDEA if this is true, just that highly credible clients have made this reference several times over the last week. It’s a high-stakes game of musical chairs, the ultimate greater fool theory moment. The colossal call buyer has thrown meat in the water and drawn in the sharks, but unfortunately thousands of Robinhood minnows at the same time. When the large players’ exit, the little guy and gal will be left holding the bag.

Apple closed near $130, while the cost of speculative upside calls is weighted heavily against the buyer. Someone must have reached out to Buffett today because he can make a fortune in selling $AAPL upside calls.

Eoin Treacy's view

Options volume has spiked higher over the last few months to hit multi-year highs. Options offer significant leverage to both the upside the downside and are among the primary vehicles for traders to take on outsized positions relative to their capital. The significant rebound in stay-at-home shares has resulted in an impressive momentum move which is not taking at least a breather. 

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