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Home › Forums › Trading Earnings Live › Vol Buy in AAPL
This trade vexes me. It feels like I’m missing something, yet it’s a trade I’m going to take every time.
Check out the implied volatility (blue line) on AAPL. It sits at 25% — there’s no earnings premium whatsoever on longer dated options.
The weekly straddle is pricing in a 3.85% move into earnings. This feels light… let’s have a look at the data:
Ok so the past 12 earnings… the average move is just about 5.75%.
So the weekly straddle feels like it’s really underpricing the move.
Now you could get away with buying straddles and trading stock in the aftermarket.
Or you could sell a strangle against that straddle, and convert it into an iron butterfly buy:
ET Live Order Ticket | ||||
Type | Asset | Duration | Strike | C/P |
---|---|---|---|---|
STO | AAPL | 29 Jul 16 | 101 | Call |
BTO | AAPL | 29 Jul 16 | 97 | Call |
BTO | AAPL | 29 Jul 16 | 97 | Put |
STO | AAPL | 29 Jul 16 | 93 | Put |
Total Debit: | 2.87 |
Pretty simple bet. A move above 99.86 or below 94.14 puts you in the black on the trade. I’m pretty confident in this trade given we’re in the middle of a range so if the stock breaks it should see continuation.
Trade worked out well. Here’s how to exit.
The trade can be split up into two trades:
The 98/94 bear put spread.
The 98/102 bull call spread.
The bear put spread is worthless now. Don’t try to exit that. you just have to exit out of the bull call spread.
So here’s the trade:
ET Live Order Ticket | ||||
Type | Asset | Duration | Strike | C/P |
---|---|---|---|---|
STC | AAPL | 29 Jul 16 | 98 | Call |
BTC | AAPL | 29 Jul 16 | 102 | Call |
Total Credit: | 3.85 |