Apple Earnings play

Long May, short two June, long July; same strike. Yeah, that's the only duration-play I would make. I can see these guys cringing at the thought of buying May vols, but you're buying gamma, not vol. A quarter point on the atm May option is worth 400bp.

 

hi guys... ATM?

 

yes

 

Thanks anyway for the link but heck, what a crappy piece of ware. This one’s free for a reason.

 

"Trading duration flips it from short to long vega."

Could you please explain this? Appreciate your comments.

 

Atticus, I looked at the fly you suggested on TOS and the profit range is actually way tighter than what I suggested. Also, I think it is very similar to my trade, but I still don't understand why buying front months instead of further out is a superior trade.
I am sure there is something I am missing and would really appreciate your insight (or anyone's else). If possible without too many greeks LOL

 

Let me try: it’s respectful bull. This is the trap of programs that apply ONE vol setting to ALL legs in a combo, instead of modelling them separately. It’s secretly rooted in Black-Scholes paradise.

Think about it: vega measures your price change when volatility changes. Well, when *which* volatility changes? Leg 1’s, leg 2’s? All have their separate ways: a 4-legged combo has 4 vega inputs (not their current vols, but their separate changes!).

Probably (I don’t know because I *know* I can’t model it) you are right by going farther out with your long legs.

 

Just buy a ton of 180 calls

 

You're in the trade simply because May vols trade at a premium. Vol is an illusion in May; price a .25 change in the atm call or put and see how the vol-line is affected.

Earnings-bets are generally a waste of time unless you've spotted a vertical skew that is exploitable. Unfortunately, it will still involve shorting gamma.

I am not trading AAPL into earnings so I've no interest in modeling it, but I already suggested modeling a 10-handle loss to May and 3 in Jan. If the trade works with those vol-inputs under one sigma on stat vol then go for it. I expect you'll trade it regardless of how it's vetted.

 

I didn't model it. I suggested modeling a 10-handle hit to May and 3 to Jan. To suggest it's not long vega is nuts. Each month added in duration increases vega and decreases gamma. Most would play the inverse.

Not only is it a LEAPS time spread, but diagonal favoring duration [deferred bets trading inside]. More vol-risk than a same-strike time spread.