AAPL Trade Idea
Oh, how I miss the expensive AAPL stock price before the split, let me name the ways: More premium for credit spreads, less commissions because I didn’t have to do as many contracts with a $500 stock price. Any positive things about the split? Yes, liquidity, which was great before the split, should be better. Why? Option bid/ask spreads will be narrower and more folk will be trading options with these cheaper stock prices. Option Volatilities are a bit higher, maybe 15%, than before the split. At-the-money Implied volatilities are around 20 now and they were around 17 before the split. This is pretty normal when stocks get less expensive after a split, moderate increases in Implied Volatility usually result.
Range Bound Trade with great risk/reward? Iron Butterfly (2 Credit Spreads). AAPL price around $91.90
Using the July 3 expiration, Buy one 95 call and sell one 92 call. In the puts, buy one 89 put and sell one 92 put. Total Credit around $210. The total risk if AAPL goes to zero or up to a billion is $90. How did we get $90 Maximum loss? If AAPL goes to zero, I did a 3 point wide put credit spread that will max out at a $300 loss. Subtracting the credit of $210, that leaves us with a potential $90 loss. Great risk/reward to bring in a potential profit of $210 with risk of only $90. I like Iron Butterflies for shorter term trades, (the July 3 expiration for this trade is about 16-17 days from expiration). Where would I worry a bit about this trade and either exit or adjust the trade? Near the expiration Breakeven points of roughly $90 on the downside and $94 on the upside. How much money would you probably put up at your Broker for this trade? Depends on your Broker, but the number should be around $90, the risk of the trade. Should I try to make the entire Credit? No, that would require AAPL being exactly at short strike of $92 in about 17 days, tough to hit the Bulls eye like that. I would shoot for maybe 25% of the credit or $50 per 1 Contract . That would give us about $50 profit on $90 of risk or capital if I did this 1 contract.
Work on the Craft and have a great day!
Dan Sheridan
dan@sheridanmentoring.com
