AAPL: 2 Tasty Trades on Apple Stock

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Apple Inc. (NASDAQ:AAPL) has stumbled amid the broader market selloff this past month. Following Friday’s drop, shares of the tech titan were 8% off their highs.

While Apple stock holders may be displeased with its recent bout of weakness, option sellers should be applauding the downturn — it has re-inflated the otherwise flaccid premiums available in AAPL options.

Prior to the latest price drop in AAPL shares, the Apple VIX (INDEXCBOE:VXAPL) was languishing at a four-month low near 25. When implied volatility is low, option selling opportunities dry up since the premiums available are so paltry.

VXAPL
Click to Enlarge
Source: OptionsAnalytix

Now, however, VXAPL sits near 32 and just like that new life has been infused into option prices.

Here’s one way to illustrate the recent change in AAPL option premiums:

On March 20, the AAPL April monthly options had 28 days to expiration and were trading with an average implied volatility of 23.02%. Based on this implied volatility, the expected move for AAPL stock was a mere $6.45 over the 28 days remaining until April expiration.

In light of recent events, volatility expectations have ramped higher. Now, these same April monthly options boast an average implied volatility of 30.33%. Even though we only have 18 days remaining until expiration, the expected move has risen $6.81.

AAPL stock is now expected to move more in almost half the amount of time.

A Pair of AAPL Option Trades

To exploit the now inflated premiums in AAPL options consider the following two trade ideas:

  • AAPL Put Spreads: Bulls could sell the April $119/$115 bull put spread for 48 cents credit. The max reward is limited to the initial 48-cent premium and will be pocketed if AAPL can stay above $119 for the next three weeks. The risk is limited to the distance between strikes minus the initial credit, or $3.52, and will be lost if AAPL falls below $115 by expiration.
  • AAPL Call Spreads: Bears can sell the April $130/$134 call spread for 61 cents credit. The max reward is limited to the initial 61-cent premium and will be captured if AAPL can stay below $130 by expiration. The risk is limited to the distance between strikes minus the initial credit, or $3.39, and will be lost if AAPL rises above $134 by expiration.

As of this writing, Tyler Craig owned bull put spreads on AAPL.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/apple-stock-aapl-options-trade/.

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