Income Trade in AAPL

[Steven Place]

AAPL is going a bit parabolic right now.

This price action feels like funds are being forced back into the stock, whether it be from good earnings or because they have to otherwise they’ll have clients calling and asking why they aren’t involved.

I’m not bearish on the price of the stock, I’m bearish on the “trendiness” of the stock. I don’t expect this to continue to rip higher every single day, and most likely will settle into a range for a little while.

Even with that thesis, I know that I’m often early on trades like this. So I’m going to create an initial trade where I plan to add capital by rolling the losing sides.

This trade is going to start off as a low odds iron condor, and as AAPL moves into either end of it, we will widen it out.

Sell to open AAPL Apr 125/115 bull put spread @2.78
Sell to open AAPL Apr 130/140 bear call spread @2.86

Here’s what will happen… as AAPL moves strongly in either direction, we will roll the losing side of the trade out.

So if AAPL runs to around 133, I will roll the call spread higher.

If AAPL sells off to around 122, I will roll the put spread lower.

The order to roll here will be a butterfly roll. That simply means using a butterfly order to complete the roll.

For example if the high side is tested, we will do a 130/140/150 butterfly buy. That will add more capital to the trade, roll the trade out by 10 points giving us higher odds, and making the trade look more like a traditional iron condor.

[Steven Place]

AAPL traded up to 133 yesterday and has pulled back since. That gives me the ability to roll the call side higher for a little less cost.

Here’s the roll:

Buy the AAPL Apr 130/140/150 call butterfly for 2.50 or lower.

By using the butterfly order, it basically closes out my 130/140 short call spread and opens up the 140/150 short call spread. This is known as a butterfly roll.

This will increase my theta, reduce my max delta, increase the total risk and capital in the trade, and increase my odds.

Breakevens are now 121 and 143. I want to be out of this trade in no more than 4 weeks– target profit is 15% return on max risk.

[Steven Place]

Going to take profits on this trade. It’s nearing 20% return on risk and current directional exposure is actually quite high.

There’s one problem with this kind of trade… because there’s such a wide difference between the short and long options, I believe that the long options decayed much faster than the short options, which means over the past 30 days it’s been tough to get any proper time decay in he position. I’m not sure if an iron condor would’ve been better, but some way to get the spread difference a little tighter probably would have made this trade profitable faster.

Buy to close AAPL Apr 125/115 bull put spread @1.51

Buy to close AAPL Apr 140/150 bear call spread @0.32

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