Something Tasty for AAPL

No talk about the VIX today. Option Pit covered the movements in the blog the last two days, so it is probably time to move on to the other VIX-like products. Other VIX-like products you say? Well, AAPL is so big that it has its own VIX, so let’s take a look at it.

Generally, AAPL is a good volatility sale. What do I mean by that? The option’s implied volatility trades over the shorter term realized volatility most of the time. The chart below shows 30 day implied volatility (red line) and 20 day realized volatility (blue line) side by side. Most of the time, the options trade expensive (except for the couple times a year when they don’t, which we have pointed out in previous blogs), and selling options is the way to get things done right now.


Now, take a look at the VXAPL.  The VIX-like index for AAPL keeps a constant duration of 30 days to expiration, so this is a pretty good indicator of things to come.  The difference is the options are starting to price earnings now, which leaves juicier option prices a bit early because of the recent selloff.  That means sell some options now.  There is probably a floor under AAPL into the earning cycle and minus more Rain in Spain short put spreads could work nicely.



The trade


Sell out of the money put spreads in AAPL (660 or lower) in the October cycle, and close a week before expiration or when AAPL regains the lofty perch of $700.

To see the strategy watch Mark’s clip on Bloomberg News:


Mark Sebastian