SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

The Volatility Option Trade in Apple


We can ride the evergreen patterns, and we have, for years. But when the market shifts, we need a minimum amount of data to adjust, and succeed -- now we will. This is our time with Apple. It's time to take advantage of volatility. Fear, uncertainty, doubt, unclear news headlines. 

These are all trade-able events, at anytime, without concern for earnings. Today we look at exactly what has worked for Apple (AAPL). 
 

Take well bounded risk, small, and direction-less, and let a tweet, a news headline, an Apple headline, a day of pessimism or a day of optimism, whatever -- move the market, as it has so often in this new volatility regime.


The Short-term Option Volatility Trade in Apple Inc 
We will examine the outcome of going long a short-term at-the-money (50 delta) straddle, in options that are the closest to seven-days from expiration. But we have a rule -- it's a stop and a limit of 10%, and, we back-test re-opening the position immediately, as opposed to waiting for 5-days later. 

Here is the stock chart for Apple since October 1st -- focus on the volatility, not the direction -- these are daily candles. 
 

AAPLcharts_1118.png
Chart from CMLviz.com



We can volatility and a general downtrend, in fact, a 14% drop in less than 6 weeks. But let's not worry about direction, let's try to find a back-test that benefits from that volatility that is in fact up 92% in just six-weeks and takes no stock direction risk at all. Here it is, first, we enter the long straddle. 
 

setup_LS_never_earnings.png



Second, we set a very specific type of stop and limit: 
 

setupup_stop_limit_1010_imm.png



At the end of each day, the back-tester checks to see if the long straddle is up or down 10%. If it is, it closes the position, and re-opens at the same time, another long straddle, but this one now re-adjusted for what is the newest at-the-money strike price. 

We have a full blown tutorial write up on this type of stop/limit behavior in the Discover Tab: Stops & Limits Roll Timing What does "open again at normal time" vs "immediately" mean? 

The Results 
We back-tested this only over the last six-weeks. We are hyper focusing not on a long drawn out pattern, but rather this time, right now, this period of volatility. 
 

cmlviz_yf_300x250.PNG


 

AAPL: Long 50 Delta Straddle
 
% Wins: 58.8%
 
Wins: 10   Losses: 7
 
% Return:  92% 

Tap Here to See the Back-test


The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger). 

Notice that this has triggered a trade 17 times in the last six-weeks and while the stock has dropped 14%, the option strategy, which takes no directional positioning, is up more than 92% in six-weeks time. This is a fast moving, re-adjusting straddle. The idea is simple: 

Take well bounded risk, small, and direction-less, and let a tweet, a news headline, an Apple headline, a day of pessimism or a day of optimism, whatever -- move the market, as it has so often in this new volatility regime. 
 

cmlviz_yf_300x250.PNG


 

Setting Expectations

Since we use end of day open and closes, while this strategy has an overall return of 92%, the trade details keep us in bounds with expectations: 

      ➡ The average percent return per trade was 11%. 
      ➡ The average percent return per winning trade was 29.9%. 
      ➡ The percent return per losing trade was -16%. 

Not only are we seeing a high winning percentage, but also that the average win is twice as large as the average loss. Further, this trade takes no stock direction risk at all. 
 

WHAT HAPPENED

When the market shifts, we need a minimum amount of data to adjust, and succeed. This is how people profit from the option market -- it's not luck, it's preparation. 
Tap Here to See the Tools at Work 

Risk Disclosure 
You should read the Characteristics and Risks of Standardized Options

Past performance is not an indication of future results. 

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. 

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. 

Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.
 

Ophir Gottlieb is the CEO & Co-founder of Capital Market Laboratories. Mr Gottlieb’s learning background stems from his graduate work in mathematics and measure theory at Stanford University and his time as an option market maker. He has been cited by Yahoo! Finance, CNNMoney, MarketWatch, Business Insider, Reuters, Bloomberg, Wall St. Journal, Dow Jones Newswire, Barron’s, Forbes, SF Chronicle, Chicago Tribune and Miami Herald. He created and authored what was believed to be the most heavily followed option trading blog in the world for three-years.


Related articles:

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Diversified Leveraged Anchor Performance

    In our continued efforts to improve the Anchor strategy, in April of this year we began tracking a Diversified Leveraged Anchor strategy, under the theory that, over time, a diversified portfolio performs better than an undiversified portfolio in numerous metrics.  Not only does overall performance tend to increase, but volatility and drawdowns tend to decrease:

    By cwelsh,

    • 1 comment
    • 199 views
  • The Best Chart I’ve Seen in 2020

    The best visual aids for learning are often very simple. The chart in this article was created by Paul Merriman, using data from Dimensional Fund Advisors. I primarily use Dimensional Funds in building portfolios for my clients. There are many takeaways from this chart, and I’d like to share a few thoughts that stick out most to me.

    By Jesse,

    • 0 comments
    • 196 views
  • Traditional or Roth Retirement Account?

    When US investors save for retirement, there are many important decisions that have to be made including which investments to use as well as which type of accounts to fund. Tax favored retirement accounts such as 401(k)’s and IRA’s should be utilized to the maximum extent possible because of the opportunity for tax advantaged growth.

    By Jesse,

    • 0 comments
    • 271 views
  • My Favorite Investing Books, Blogs, Papers, and Podcasts

    There are so many excellent sources of investment education available today that I thought a short post about some of my personal favorites could be beneficial. Below are different forms of content that have been particularly impactful to my investment philosophy, and they are not in any specific order.

    By Jesse,

    • 0 comments
    • 535 views
  • Go For Gold! The Business Behind The Dazzle

    The price of gold is often in the news—sometimes it's rising, and other times it's dropping but for the most part, it has been on a steady increase for many years. It is certainly worth more now than it did twenty years ago. When its price is on the rise, we may have thought about the benefits of selling our gold for profit and making some passive income from it.

    By Kim,

    • 0 comments
    • 312 views
  • Using Bullish Calendar Spreads to Profit on MSFT Stock

    A calendar spread is an income trade where the trader sells a near term option and buys a longer-dated option with the same strike price. Usually this is done with monthly options, but it can also be done with weeklies. They are long volatility trades so can be a nice addition to a portfolio as a way to offset some short vega.

    By GavinMcMaster,

    • 0 comments
    • 606 views
  • 3 Principles to a Successful Investment Experience

    Although not an exhaustive list, what I’ll present in this article are three core principles that overwhelmingly stack the odds of a successful long-term investment experience in your favor. These three principles are asset allocation, diversification, and rebalancing.

    By Jesse,

    • 0 comments
    • 429 views
  • Important Tips For First Time Currency Traders

    Diversifying your portfolio is important for all investors, and currency investments are a great way to do that. However, there are a lot of misconceptions and common mistakes that first time currency investors make, and this leads to big losses.

    By Kim,

    • 0 comments
    • 452 views
  • Iron Condors or Short Strangles?

    In my early option trading days, I favored selling iron condors over selling strangles. I thought that selling a strangle was too risky because the potential loss was “undefined”. I thought this made sense because this is what I’d hear from other people that were more experienced than I was.

    By Jesse,

    • 0 comments
    • 1,954 views
  • How To Be A Successful Day Trader From Home

    The good news is that if trading is your passion, then it’s possible to become a successful day trader and work from home. However, it’s not as easy as setting up shop and jumping online. There are specific steps and processes you need to have in place if you’re going to be able to make a living for yourself and have a bright career and future.

    By Kim,

    • 0 comments
    • 591 views

  Report Article

We want to hear from you!


There are no comments to display.



Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

Options Trading Blogs Expertido