AAPL Income Trade for today!

AAPL is at around $128.40 as I write this Blog. The stock is up about 16% for the year from the $110 level. The range over the last 6 weeks has been about 125-132.

At this level, the stock is kind of in the middle of the range and I am looking at a relatively  delta neutral income trade.

What Does Delta Neutral Mean?

  • Not really leaning long or short deltas, no opinion.

What does Income Trade mean?

  • A Trade that is positive Theta, my short options decay quicker than my long options.

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June 12 Expiration in the Calls ( about 29 days from expiration). Buy one 125 call, Sell two 128 calls, Buy one 131 call.  Total Debit .48 ( $48). This is an at-the-money call butterfly.

I did it live 3-6-3 earlier today at .50,  3-6-3 at .49, and 3-6-3 at .48. That’s called scaling into a trade. I did the quantity 3-6-3 at three different price levels.

Why? I was trying to see what price the market makers really wanted to trade this at.

Mid Prices were .50 when I first started trading this, and I got filled pretty quickly. It was pretty easy to get filled near mid.

Increase in Price

As the price started increasing a bit over $128 , the price of the butterfly decreased a bit, that’s when I got filled at .49 and .48.

You pay the most for a call butterfly at the strike of the short option. As the price of the underlying moves up or down away from the short strike, the butterfly will trade for less.

Option volatilities in AAPL are around 21, the lower end of the range.

I don’t mind the low option volatility for this trade because I like the range I can make money in this trade and with earnings out of the way, I don’t see AAPL implied volatility levels rising that much over the next 14 days.

My Plan

I would like to be out of this 29 day trade in about 12-14 days. Over 132 and under 124 I may look to adjust or get out. In between the prices over the next 12-14 days, I can make anywhere from 1% to 40%.

Closer to the short strike I make more, farther away from the short strike, I make less. AAPL trades more option contracts daily than any other stock.

AAPL averaged over 200,000 plus option contracts daily in April, the 2nd place stock in average daily volume was FB with around 55,000 option contracts traded daily.

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