Trading in Apple Inc options surged on Tuesday after activist investor Carl Icahn revealed via Twitter a large stake in the tech company, which he believes to be undervalued.
Option volume on Apple was three times the average daily turnover with 764,000 calls and 344,000 puts traded on Tuesday, according to options analytics firm Trade Alert.
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"The Icahn news has had impact both on the value of the company and the projected future movement of the shares in the options market," said Ophir Gottlieb, managing director of options analytics firm Livevol.
"This is about an $18 billion market cap rise in the value of Apple. The implied volatility for the next 30 days on Apple options rose 9 percent to 25.3 percent, reflecting more risk for Apple shares in the near term."
In addition to his stake, Icahn tweeted that he discussed increasing Apple's buyback program with Chief Executive Officer Tim Cook.
August options which expire on Friday after the close represented 52 percent of Apple's turnover. Apple options volume also accounted for 11.6 percent of the total single stock options volume for the day, data from Trade Alert showed. The most active contracts were the August $480, $475, $490 and $500 call strikes.
"A lot of the focus is in the short-dated August calls that expire at the end of this week as traders are apparently using calls to speculate on additional gains," said WhatsTrading.com options strategist Frederic Ruffy.
Following Icahn's comments, Apple shares rose as high as $494.66, their highest level since January. Trading volume was more than 31 million shares, about three times the 10-day average. The stock closed up 4.8 percent at $489.57.
Once the most valuable company in the world, Apple's stock price has hovered between $400 and $450 for months, after dropping from record high of around $705 in September 2012. For the year, the stock is down about 8 percent.
(Reporting by Angela Moon in New York and Doris Frankel in Chicago; editing by Matthew Lewis)