Credit: Shutterstock photoApollo Group Inc. (NASDAQ: APOL ) could experience significant upside throughout the next 16 days until June options expiration according to at least one investor who chose to load up on calls to express a bullish bet.
APOL gained 27 cents, less than 1%, to $51.67 during afternoon trading, and is slightly underperforming the broad-market gains on the day. The company has not announced any news recently, but the market anticipates its earnings report around June 28 (Thomson Reuters analysts estimate earnings of $1.55 a share). The front-month June 60 calls were active during the morning session, and the majority of the action looks like buyers calling for short-term upside.
By 1:22 p.m. EST, more than 11,800 out-of-the-money (OTM) June 60 calls had changed hands versus current open interest of 5,200 contracts, indicating the majority of this volume was most likely initiated to open. The largest block of these calls crossed the tape around 9:52 a.m. EST for 46 cents per contract, which was the bid price when the volume changed hands. Despite the pricing action, it looks like investors bought the calls on a bet that APOL shares will be trading higher than $60.46 at June options expiration. Take a look at implied volatility of these calls, which is roughly 61% compared to the stock's 30-day historical volatility of 46% (buying action most likely pushed up implied volatility levels today).
A long call trade is similar to a long stock position, but has a different risk profile. Like a long stock position, the call buyers who bought the June 60 calls could theoretically make unlimited profits to the upside. If the stock remains below the breakeven price, the long call trade caps maximum loss at the premium paid, or 46 cents per contract, as the stock moves closer to zero. If you are bullish or bearish on APOL and interested in trading in the real world, remember to take advantage of
If the price of the calls appreciate throughout the next couple weeks with or without a rally in APOL shares, keep in mind the investors who bought the June 60-strike calls could choose to sell back the options and take profits instead of holding them until expiration.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
