Heavy volume in Apple Inc. (AAPL) puts expiring in one year with a strike price 4% lower shows that institutional investors are bullish on AAPL. In addition, this short-put play provides a 6.76% one-year yield.
AAPL is trading at $322.96 midday on Wednesday, Sept. 16. This is off a recent peak of $340.08 on July 28, but up from a trough of $302.25 on Aug. 12.
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However, AAPL could be near a peak based on analysts’ price targets. That might explain why some investors are willing to buy these out-of-the-money (OTM) puts. On the other hand, these price targets have risen in the last month.
Higher AAPL Price Targets (PTs)
I wrote about Apple’s valuation in an Aug. 2 Barchart article, “Apple Delivers Strong Free Cash Flow, But What is the Best AAPL Play?” I showed how AAPL stock could be worth $345.46 per share based on the company’s strong free cash flow (FCF) in its July 30 Q2 earnings release.
This was based on analysts’ Sept. 2027 revenue forecasts of $524.8 billion and applying a 29.5% FCF margin. Since then, this revenue forecast has risen to $527.97 billion (Seeking Alpha), so FCF could hit $155.75 billion (0.295 x $527.97b).
After applying a typical 3.0% FCF yield, the fair market value (FMV) could reach $5.192 trillion ($155.75b / 0.03). That’s 6.9% over today’s market cap of $4.857 trillion, implying a PT of:
$322.96 x 1.051 = $345.24 PT
Wall Street analysts have raised their PTs as well. For example, Yahoo! Finance’s survey shows $327.20 (up from $321.66 as seen in my last article). Similarly, Barchart’s survey is up to $328.18, up from $322.22, and AnaChart’s survey now shows $323.31, up from $316.31.
That’s why today’s unusual put volume at a lower strike price. It shows some investors may either be expecting a dip in AAPL or they want to buy at a lower price in case AAPL falls.
Unusual AAPL Put Option Volume
The long-dated put volume in Apple stock is shown in Barchart’s Unusual Stock Options Activity Report today. It shows that over 9,900 puts have traded at the $310.00 strike price, but the expiry period is one year from today, Sept. 17, 2027 (i.e., 366 days to expiry or DTE).
This volume is over 17x the prior number of contracts outstanding at this strike price, which is 4% below today’s price and the DTE period.
