Trading Options AAPL against SPX

Because AAPL and SPX are highly correlated, I want to sell ATM call options in AAPL and buy ATM 1 call option SPX, both are 50 delta, cant figure it out , how many AAPL calls I need to make the position neutral, do I use underlying price ratio or call option price ratio?

The Idea is to sell AAPL which is higher IV than SPX.

Example : AAPL Call 143=$1.2, SPX Call 3650 =$22.30

price ratio=3650/143=25 or 22.3/1.2=18

Thanks

 

Dynamic Hedging: Managing Vanilla and Exotic Options
https://a.co/d/7GEoT1i

 

A crazy, dangerous trade. There is a very good reason why a single name will have higher vol than the index.

Study Dispersion Trading as well.

One way of calculating the ratio is by comparing notional values or dollar delta with a beta adjustment. Not simply price or premium.

 

beta adjust the delta or the notional (stock prices). That’s what I would do.

it will be a very noisy trade.

 

But in general, it could be the right decision and give some result.

 

On what basis? The fact that you receive premium?

 

Why not "de noise" this trade by turning each part into a spread? Less profit but if and when the two IVs diverge, losses won't be severe.

 

And isn't this type of dispersion trade usually done as a basket?

 

https://www.nuclearphynance.com/User Files/2/Dispersion - A guide for the clueless 1.1.pdf

 

a spread doesn't change the fact that AAPL and SPX will diverge in realized vol and in direction quite a bit.