Wednesday, January 27, 2016

AAPL 2016 Update #68 (Stock Purchase)

AAPL opened this morning a points down from yesterday. Earnings were released and the stock is sinking on today's open.

I am going to adjust the short call hedge as the stock is currently trading around the 95 mark. This is 3.5 points below the 98.5 short call.

Since the price is dropping, the deltas in the short call is getting smaller -- meaning that its effectiveness as a hedge is decreasing.  I am going to adjust bringing the hedge back to around -55 delta and use the proceeds to purchase more stock.

The large move in the price is harder to hedge than a number of smaller moves.

This is straight adjusting the short deltas to maintain hedge of around 55% of long stock.

I also do not have long put (in hindsight keeping the long 95 put would have worked out nicely -- but that is trading). Now that volatility has collapsed, pricing of options are less inflated.

[Update: AAPL continued to sell off closing at 93.44 -- exactly within the range predicted by the ATM straddle the day before! Another adjustment is most likely coming again tomorrow. Note: the overall market is trading weak]

Part 1 - Roll down short call
+8c Feb 5' 98.5 Call @ 0.68
-8c Feb 5' 95.5 Call @ 1.73
Net Credit -1.05/c

Part 2 - Purchase stock
+9 shrs AAPL @ 94.70

Total shares of stock is 841

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