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Option Tip – Friday, 7th October, 2011
APOL



The option tip for today will be based around a bearish play on the short-lived rally for Apollo Group, Inc. (APOL).

apol logo

Business Description

Apollo Group, Inc. (APOL) offers innovative and distinctive educational programs and services both online and on-campus at the undergraduate, graduate and doctoral levels through its wholly-owned subsidiaries.

Bearish Reasons for APOL

apol-2

This inclination toward bearish bets is backed by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). A recent single-day put/call volume ratio for APOL was 11.31, which confirms that traders, in general, are concerned about the Apollo Group rally running out of steam.

The equity's 10-day ISE/CBOE/PHLX put/call volume ratio of 7.69 confirms that puts bought to open have overwhelmingly outnumbered calls during the past two weeks. This ratio lands two percentage points from an annual high, signaling that traders on these exchanges have rarely purchased bearish bets over bullish at a faster pace during the past year.

Also, within the market, short sellers remain firmly entrenched. Short interest on the equity jumped 10.5% during the most recent reporting period, and now accounts for 7.3% of the security's available float. In fact, at APOL's average pace of trading, it would take over one week to buy back all of these bearish bets.

The “fly in the ointment”, in regard to the data for a bearish move, came Wednesday in the form of Credit Suisse, who increased its price target to $47 from $35, and upgraded APOL to "outperform" from "neutral." The firm also lifted its earnings-per-share targets on the University of Phoenix parent through the 2013 fiscal year. Credit Suisse believes that new enrollment numbers may increase this quarter, as APOL was among the first of its peers to up its standards for enrollment and financial aid.

"Dead flies cause the ointment of the apothecary to send forth a stinking savour: so doth a little folly him that is in reputation for wisdom and honour." --Ecclesiastes 10:1 (King James Version)

Despite APOL's nearly 2% rise yesterday, momentum appears to be stalling in the formerly supportive $43-$44 region, which could solidify its place as resistance. APOL has burned off roughly 21% since touching a near-term peak of $54.23 in late July, falling under pressure from its 10-week moving average.

APOL-100711



In light of APOL's troubles on the charts, the preponderance of puts signals that options traders are betting against a lasting rebound for the company.

The Option Tip

The option tip surrounding Apollo Group, Inc. (APOL) is to buy the October 35 put.

”Success is simple. Do what's right, the right way, at the right time.”



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