AAPL IV Expansion Trade

Discussion in 'Options' started by bebpasco, Oct 3, 2009.

  1. bebpasco


    AAPL earnings on 10/19 amc. Oct series expires on 10/16. Interesting set up for an earnings IV expansion trade with long Nov. strikes hedged with short Oct. strikes.

    Looking at dbl ratioed calendars at either the 200/170, 195/175, or 190/180 strikes. Projecting IV expansion on the Nov. options to 44% (avg of put & call strikes). Select the ratios based upon your comfort style.

    Several things working in your favor here. IV expansion on the Novembers. Theta decay on the Octobers. Reasonably good execution available with the penny quotes and small b/a.

    Biggest risk is earnings pre-announcement that collapses IV. With two weeks before earnings, AAPL is in their quiet period and their usually tight lipped.

    Idea is to close position out on or before 10/16. However, if feeling frisky, you can morph the trade into an iron condor, dbl ratioed vertical or double christmas tree and ride it on thru earnings.
  2. erol


    just in time for the holidays!
  3. spindr0


    I've been watching AAPL, looking for some pre-earnings combo possibility for playing post EA contraction. I'm a bit surprised that this close to earnings, its IV hasn't expanded much. Still watching and waiting.

    A coupla behemoths worth looking at in the next 2 weeks are BIDU, GOOG and ISRG. Two mid levels that often move are NFLX and MICC.

    Happy hunting!

  4. bebpasco


    EA contraction trades are tough right now because IV expansion ain't what it used to be. I'm looking for minimal IV expansion in the Nov's to make this AAPL trade work. Will not roll it into a EA contraction trade for 10/19

    If you're looking for a decent EA trade look at FDO. Using 39% after announcement (10/7 bmo).
  5. Front month IV usually experiences a sudden jump ten minutes before market close on the ER date.

    Monitor the IVs carefully after 3:40 PM
  6. spindr0


    Thanks for the heads up. Nice starting point and will be interesting if they're splitting the B/A at all tomorrow.