Apple Inc (AAPL)

[ASimEE]

You must be talking about calls? He said puts and I doubt those that far out of the money would be bought for $121 a contract.

Nope, puts. Etrade shows 12 MAR14 $385 strike puts were purchased mid November at $121 per contract. For the time left on the puts, I think $121 is reasonable.

Open interest doesn't always account for the actual volume traded. I have bought options with zero open interest before in thinly traded strikes. I always assumed the MMs covered the buy to open in order to make the market.

Open interest is the number of contracts that have been bought or sold to open and have not been closed yet.

Zero open interest just means no one is holding that particular contract, not that it hasn't traded (if I buy a long call and then sell it, open interest is 0). If you want to buy a contract with 0 open interest, the MM sells you the contract and then hedges that by buying up the opposite contract or shares (i.e. if you buy 1 long call option, the MM sells you the call and then immediately shorts 100 shares of the underlying security to hedge his position). That's how I understand it at least. I'm always open to different ideas.