AAPL post earning trade

[Vancouver 54]

I've opened a few 2-week calendar spreads post AAPL earnings.

Specifically, C133 (@ $1.35), C132 (@ $1.27) and P131 (@ $1.66)

 

The idea is that the big news are out, the stock has stabilized, but IV are not back yet to their historical levels.

The plan is to keep those spreads for 1-2 days, and enjoy a relatively fast decay in the price of the short options that expire this Friday.

 

Of course, if a big move occurs, the trade will lose money, but the premiums collected on the short legs provide reasonable protection. 

 

This is an experiment for me, so I'm trading just a few spreads of each strike.

 

Any input will be highly appreciated!

[deblina1981 2]

which one is your short leg?

[deblina1981 2]

I mean which expiration date.

[Vancouver 54]

Long May 15, short May 1.

[Yowster 9,849]

Vancouver - Its a good trade structure for AAPL stock staying at these levels for the next few days, if it does then you'll certainly make some profit.  I think one of the bigger risks to this type of trade, entering the first trading day after earnings, is that sometimes analyst upgrades/downgrades can come a few days after earnings and that can sometimes cause bigger stock price moves and negatively affect your calendar.

Edited April 28, 2015 by Yowster

[Stephen 4]

Have to love the liquidity...

[Kim 8,043]

The negative gamma is huge for those trades. The IV of short options is already down to normal levels, so it's a pure theta play. I would consider it fairly risky, AAPL tends to move days after earnings, especially if it didn't the first day. Please update us on the results, and thanks for sharing.

[Optrader 142]

I too dont see any big edge in the setup

It is high risk high reward

Mostly speculation

[Vancouver 54]

Ok, so this AAPL setup wasn't successful and I closed the position for a 15% loss yesterday.

 

But what I had in mind is illustrated in the screen shots I took on my phone some 6 months ago.

They illustrate the price pattern of a 4-week calendar spread on AMZN, a day after earnings were announced.

Note that the short options expire on that day.

 

As you can see the ATM calendar (290P) could have been bought at $4.60 or so at 9:40am, and went all the way up to a mid of $7.70 or so by 3:58pm.

 

Of course, the stock didn't move much during the day, but by 3:58pm, when the stock was at $288, the 300P was trading around $4.10 or so.

That's a cushion of a 4% intraday post-earning move.

 

Maybe we can think about a strategy that is based on this idea?

Any thoughts are welcome!

 

 

 

[Yowster 9,849]

These are really options trades based on the last few days prior to expiration.  I'd recommend reading "Trading Options at Expiration"  by Jeff Augen where he goes into a lot of detail around this type of trading, and also dives deep into the options pricing behavior the last few days.   In your examples, they were right after earnings, but they can really be any time just prior to expiration.   A lot of his trade examples are using unbalanced ratio spreads where you are short more options than you are long, so lots of margin required.   But it does get you thinking about some other strategies such as 1x3x2 spreads where you cover the extra shorts with further OTM strikes.   But most of these trades boil down to a gamble of minimal price movement.