Thursday, May 21, 2015

AAPL Update #6

May 22

Analysis

AAPL opened up to 132 this morning. Implied volatility rank in the options is the cheapest on an annualized basis -- ranking at the 1% (IVR).

This means the options are the cheapest historically in a year and have little inflated time premium.

Purchasing hedges is very cheap.

Stock is moving back toward the all time high supply zone established by the most recent earnings period. All time high is 134.54.

Overall market volatility is dropping as the indexes drift higher into the US May long weekend.

Here are some possible adjustments:

(1) Roll the short call from Jun 5 128 to Jun 26 130 (buy back the Jun 5 128 call, selling the Jun 26 130 call) can be done for about 0.15 net debit on yesterdays close. We are adding two more dollars in potential profit and extending duration. (Today this roll is more expensive moving higher as the stock climbs. It is currently trading for about 0.40)

Purchasing protection Jun 26 125 put strike can be done for less than a dollar, about 0.95

Therefore the entire collar can be rolled up and out for about 1.10 even creating a synthetic 125 - 130 vertical spread.

The expected move (EM) for AAPL by June 26 at current IV is from 126.25 to 136.50

I would be spending 1.00 to make a net gain of 1.00 if the stock can close above 130 by Jun 26 expiration.

(2) Take advantage of the very low IVR and tighten the existing collar, locking profits from original move from the 123/125 area. Not extending duration at this time.

Trades:

+0.35 X 6 contracts of Jun 5 127 Put.

The 2.00 dollar gain from 125 has been locked in at a cost of 0.35.

The collar position is now a synthetic Jun 5 127 - 128 vertical spread. The time value in the short 128 calls has 0.50 left (132.54 - 128 = 4.54 intrinsic value, option is trading for 4.95 bid X 5.15 ask.

If there is a volatility expansion in the next two weeks, I will be prepared to sell the collar structure.

-End









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