Sunday, November 08, 2015

AAPL Update #41

Nov 6

Analysis

Expiration Friday! AAPL continues to have low volatility and now ranks in the bottom 11% for its volatility range (52 weeks) for options in the 7-149d period. This means both puts and calls are cheap and on balance the market remains trending upwards.

AAPL during the last few trading days has come into a tighter range and may be consolidating or entering a slight pull back. 

In taking advantage of this low volatility, I have entered in a couple of trades which have constructed the collar position for the next two weeks.

At this point, if the market is bullish I could have used the funds from the short calls to just buy more stock and no protection. However, as we have seen you cannot predict the market. It may go up, it may go down, it may just do nothing. That is as much as I can predict. 

However, there price is now trading in a supply zone around 125 with another one at 130-132. The market will need to stall at these levels to work off supply. Overall daily trend is still upwards.

The trades (short call and long put) are positioned 2 weeks out in time and combined have a net delta of about 45-50. This delta is against the long 100 deltas of the stock. Each option leg is about 22-25 delta, so while statistically still very much OTM, it is near the sweet spot for deltas (35). If the market begins to move up or down these options will gain or loose value quickly.

Trades

Part 1a. Sold calls from a few days earlier (Nov 4)
-7c Nov 20' 127 Calls @ 0.62
Net credit of 0.62/c

Part 1b. - Roll down the short calls to increase cash position
+7c Nov 20' 127 Calls @ 0.36
- 7c Nov 20' 125 Calls @ 0.68
Net credit of 0.32/c

Part 2 - Purchase protective puts
+7c Nov 20' 117 Puts @ 0.74

The puts were purchased from the credit from the above roll and from the initial sale of the 127 Calls from a few days ago. No funds were added to the account.

The collar structure on this position looks as follows (with P/L showing). The position has a maximum profit at 125 strike for just over 11K and a minimum profit of around 5.5K at the 117 strike. The position is theta positive above 121 and negative below 121.


The greeks are shown for each leg below: