Just closed successful AAPL Long Diagonal from Aug 5 Blog

Red apple with missing a bite isolated on white backgroundJust closed out live long Diagonal from August 5 Blog. We entered a neutral to slightly bullish trade in AAPL when it was around $115 1/2. We bought the November 110 /September 115 call diagonal for $5.45 debit . I just sold it out now live  for $5.89 credit with AAPL up today at about $117.44, a return of about 8% in 5 days. I could have let the trade go longer and seek the original 15% target. I decided to get out today partly because of impatience ( not good), and partly because I’m not convinced yet that AAPL will stay up in this price area of around $118. Stay tuned for the blog this week for next trade idea.

Saturday, I taught a 4 hour class on Manage by the Greeks. I showed how to apply this risk management methodology to most of the common strategies you employ, including cash secured puts, calendars, Iron Condors, butterflies, covered writes, long diagonals, and credit spreads. For Iron Condors, Calendars, and Butterflies, we covered 30-60 day trades as well as Weekly trades. Lots was covered and the class should be ready to buy the archived version this week. Go to Sheridan Mentoring web site for more information to purchase the class. Very cheap cost of $197. Great thing about classes you buy from Sheridan mentoring, you can e-mail questions anytime, even months after the class, and Dan will answer them.

AAPL Long Diagonal Trade

AAPL is currently at around $115.47 at around 12:30 central today. The stock is down about 10% in the last week if you count the lows today of around $112.

About 2 months ago AAPL hit $132-133 area. AAPL hit $112 today and could go a bit lower short term, but I think it will be over 114 in the next few months.

I am looking at a strategy called a Long Diagonal or Fig Leaf (name given to this type of strategy by Brian Overby at Trade King).

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Trade: I just put this trade on live and will follow up on this.  Buy 1 November 110 call and Sell 1 September 115 call for total debit of $5.45 debit. The Breakeven point at expiration on the downside is around $110.70.

My short September is around 44 days from expiration and my long November call is 107 days from expiration. On the downside for this week, if we hit $113, I would probably look for an adjustment and would probably come on the blog and discuss one.

My profit goal on this trade is to make around 15% of the cost of the trade. This is a debit transaction. Please see our options mentoring page.

What strategy for AAPL earnings?

AAPL earnings come out Tuesday after the close of trading. The last 4-5 quarters since the stock split, AAPL has seen dismal small moves between  2-5%.

This has favored Iron Condor strategies, credit spreads, short strangles, calendars, and most other range bound strategies. This earnings may be different and might be more volatile.


2 Reasons

1)  Stock is up over 10% from $120 to $132 in about 10 days. 2) NFLX , GOOGL, and other tech stocks have made bigger than normal moves. The range in AAPL over the last three months is also about $120 to a little over $134.

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Here are 2 potential trading ideas with AAPL at $132.


#1  Sell the August 121-125 put credit spread in the August 7 expiration for $70. I don’t think the stock will go back down under $125 over the next 2 weeks. This strategy will yield about 20 percent if held till expiration.

The credit is $70 and the capital or risk capital would be $330. I would determine my size by how much I would be willing to lose if we had a huge move down. If I only wanted to risk about $300, I would do 1 contract.

If I was willing to risk $1000, I would do 3 contracts. If I was bearish and thought AAPL would drop below $125, I wouldn’t do this strategy.


#2  Buy the August Call Butterfly with expiration of August 7. Buy 1 August 131 call. Sell 2 August 135 calls. Buy 1 August 139 call. Total Debit $65 . I think the volatility in the August 7 expiration will drop about 10 points.

On Wednesday’s date with the implied volatility down 10 points, if AAPL is between 129 1/2 and 140 1/2 this strategy can potentially make between 10 and almost 60%. If I thought the stock Wednesday , after earnings would be between $129 1/2 and $140 1/2, I would consider this strategy.

Weeklys Options

The ATM straddle in the Weeklys options is currently around $6 1/2, which means the Market Makers are projecting the anticipated earnings move to be around 5% up or down. That would translate into a move of around $6 1/2.

Dan Sheridan  dan@sheridanmentoring.com

Just took off AAPL Butterfly from last week!

monarch butterfly isolated on white backgroundLast Tuesday June 23, we bought a live AAPL Butterfly on Sheridan TV  . We bought the July 123-127-131  Call Butterfly for around $1.22 debit. If anyone is in the trade still, today is where I took some of the trade off at $1.35 credit a few minutes ago. That’s about a 12% profit in 1 week! We discussed the trade  on Sheridan TV yesterday and what our game plan was. If you missed the show, you can go to www.sheridantv.com to watch the recording. Our short strike of the butterfly was 127 and with AAPL around $126.35 as I write this blog, we are approaching the 127 sweet spot. The other factor that has contributed to profits on this trade over the last 2 days is the implied volatility in AAPL decreasing. Implied Volatility in AAPL in the July expiration was 22 at end of big down day Monday, and today with AAPL increasing in price over the last 2 days, Implied Volatility in the July expiration has decreased to the 18 level. This decrease in Implied Volatility really helped the profits over the last 2 days. Make sure to join us every Tuesday and Thursday at 1pm CT. for live trades and updates, only at SheridanTV.com

Profit on AAPL Butterfly today and new trade

May 14 Blog featured a live Butterfly trade in AAPL I put on for around .49 debit and took off today for $2 credit. Did the trade 9-18-9 and made $150 times 9 butterflies or around $1300 on an investment of around $450.

Do I normally leave a trade like this on all the way to expiration? Not usually. This particular trade , I was comfortable with the 125-133 range AAPL has been in.

As long as AAPL didn’t break through 133 or under 125, I was going to try and milk the cow. I was on vacation last 3 weeks and left the trade on, not the norm for me, but it worked great.

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New Live Trade: May 14, AAPL was around $128 and I put on the $128 Butterfly at-the-money because I felt AAPL was in the middle of the range. Today AAPL is at 127.56  -1$  for the day.

The last 3 weeks AAPL has traded between 127.4 and 132.57. I am doing a live butterfly 9-18-9 in the July 2 expiration in the calls. I am buying the 126 strike 9 times , selling the 129 strike 18 times and buying the 132 strike 9 times.

Total debit of .67 and I’m doing it 9 times, so 9 times $66 or $603 excluding commissions. I get $1 per contract with no ticket charge.

I am doing this slightly bullish, looking for a little pop in AAPL up towards $129 over the next 2 weeks. I just did the trade live at 2:47 central time for .67 debit  9-18-9. Will monitor this and follow up on this trade in a future blog.

Why I wouldn’t trade Covered Writes now?

I want to start decreasing my capital commitment to long delta positions with SPX at record levels. I will use AAPL as an example. AAPL currently is at $130.

Here is an potential covered write. Buy 100 shares at $130 and sell 1 June 132 call at $2. In a retirement account, the margin or capital  to put up for this trade would be about $12,800.

This number was calculated taking the full cost of buying 100 shares of stock  minus the $200 premium.

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An alternative that would require much less capital would be an Long Diagonal. Buy 1 August 110  Call at $21  and Sell 1 June 132 call for $2.

The total capital outlay would be $21  minus $2 or $1900. This is over 6 times less capital than a conventional covered write. The long position deltas starting out with the Long Diagonal would be about 50.

Covered Write

That means for the first $1 up from $130 to $131 in the stock , we would make about $50 on capital of $1900. With the Covered Write, the long position deltas starting out would be about 59 deltas.

That means if AAPL went from $130 to $131 today, we would make about $59 on capital of $12,800. Would you rather make $59 on $12,800 of capital or $50 on capital of $1900?

Long Diagonals

This is the reason I like Long Diagonals. With the market at very high levels, the long Diagonal almost duplicates the profit results of a conventional covered write on the upside, BUT I’m putting a lot less of my capital at risk with the market looking pretty frothy!!

And the yield potential on the capital I am committing with the Long Diagonal is much higher than the yield potential on the capital committed to the covered write.

Check out Sheridan Mentoring website for details of our annual 2 day Option Trading Seminar at the Gleacher  Center in Chicago featuring 13 different Speakers.

Should I do Covered Writes with SPX at record levels at $2120??

If you still like a particular stock, the answer is YES! The key is how you do the covered write. Let’s give a trade example.

Trade example #1 AAPL $129. AAPL has been in a range of 125-132 over the last few weeks. This year, it is up about 16% from the $110 level. We are not at the highs, but getting close. If I was concerned about the market backing off and dragging AAPL back down a bit, I would look at an ITM covered write. I would buy 100 shares of stock ( some may already own the stock). I might sell a June 125 call against the long stock. The call is trading at around $5.80 with the stock at around $129. This would give me more downside protection, the breakeven is at $123, below the support of the last 6 weeks. Selling this in-the-money call would cushion us for about a 2 1/2 % drop in the stock over the next month.

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.

Example of Stock Iron Condor in AAPL

Example of a stock Iron Condor would be AAPL. I am first using the criteria for a stock Iron Condor from the previous post today and then giving a trade example.

Criteria #1: It’s a stock I would buy 100 shares in my retirement account.

Criteria #2:  Very Liquid stock, AAPL trades around 200,000 option contracts daily, dwarfing most other stocks in Options Volume. Also, AAPL is high enough price, currently at $124.

Criteria #3: AAPL implied Volatility is around 25 for at-the-money calls, I like stock Iron Condors around 25 level.

Criteria #4: If I was putting more Iron Condors on in stocks, I would add stocks from different industries than AAPL.

Iron Condor Trade in AAPL:   Stock around $124. Looking at June 5 expiration, around 30 days from now. Buy 1  138 call and sell 1   133 call.  In the puts, buy 1   110 and sell 1  115 strike. Total Credit for 1 Contract is $110. Total margin or risk for 1 contract Iron Condor is $390.