Apollo Group Put Trading Backfires in Biggest Loss of U.S. Options Market

Options traders who piled into bearish bets against Apollo Group Inc. before the largest for- profit college operator’s quarterly report had today’s biggest loss in the U.S. market as the shares soared.

Apollo, the Phoenix-based operator of the University of Phoenix, jumped 13 percent to $40.74 as of 4 p.m. in New York after reporting quarterly results that were higher than analysts estimated. Trading of puts to sell the stock jumped to a 12-week high of 42,316 contracts yesterday as investors purchased contracts to hedge against stock losses or bet on a drop.

Apollo’s January $36 puts plunged 96.2 percent to 7 cents today for the biggest retreat among all contracts traded on U.S. exchanges, according to Bloomberg data. Yesterday’s most-traded options, the January $34 puts, fell 96.1 percent to 4 cents for the second-biggest loss. Apollo puts accounted for eight of the 10 biggest losses among U.S. options.

“That’s a heck of a whacking for those puts,” said Andrew Wilkinson, the senior market analyst at Greenwich, Connecticut- based Interactive Brokers Group Inc., wrote in a report. “This is what happens when everyone stands on the same side of the ship. They’re all lined up in the same predicament and there are no buyers, just like yesterday when there were no sellers.”

Government Scrutiny

Apollo lost 5.4 percent to $35.94 yesterday after Strayer Education Inc. said government scrutiny of education companies discouraged students from enrolling. The Arlington, Virginia- based operator of 87 campuses and an online university led declines among for-profit colleges yesterday, falling the most in almost 11 years.

Bullish Apollo options traders made the most today as the January $39 calls, yesterday’s ninth most-active, jumped 236 percent to $2.08 for the biggest gain among all of the company’s contracts. Thirty different Apollo options gained at least 100 percent today.

Apollo said fiscal first-quarter profit excluding one-time items was $1.63 a share, beating the $1.35 average estimate of 21 analysts surveyed by Bloomberg. An index of 13 for-profit colleges gained 5.7 percent.

Short selling in Apollo was 1 percent of outstanding shares as of Jan. 7, down from a 52-week high of 6.2 percent in October. Short interest in the Standard & Poor’s 500 Index is at 2.9 percent, according to data compiled by Bloomberg and Data Explorers, a New York-based research firm. Short sellers profit from price declines by selling borrowed securities and replacing them with stock bought at lower levels.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.