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AAPL Trade Idea #2: Selling a Bullish AAPL Straddle

This is trade 2/3 on AAPL that I'm going to give out. This one is catered to a much longer timeframe so you should consider this trade in AAPL more of an investment than a trade. There is much downside delta risk but it's similar to stock. Here's the trade:

Sell AAPL Jan 10 120 Straddle 52.65 or better

Now since this is further out you may have a harder time getting a fill but the price should work. Also, AAPL has a runup since I put this trade on so it's operating at a profit right now. Here's the risk profile for a single straddle:

Your breakeven at spiration is 67.38 and 172.65. That's a pretty nice area. With your basis at 67 and your max gain at 52.65, you're looking at a 78% max return in a year. The odds are it won't stay around 120, but it should be profitable in a year provided the stock doesn't go much further or double in 12 months.

If you experience a big run to the upside you should see volatility come off, and since the trade is negative vega you'll make money on a vol crush. Also notice that your delta as of righ tnow is only 30 so it's equivalent of owning 30 shares of stock. That means right now your delta risk is limited but as time goes on it will increase.

I think it's a decent trade overall, especially when you see your area of profitability:

Why I Got in a DIG Vertical Spread

Here's what I called out on stocktwits the other day:

I was basing this purely on techincal analysis. Here's what I saw in the chart:

I knew that at that price odds were in favor of more demand coming in at that price. Now instead of picking up straight calls or stock, I chose selling verticals because:

  1. The credit spread offered the ability of positive theta
  2. It has only a slight delta risk that will increase over time
  3. The statistical odds of success were around 50%, and I think that the odds are higher on this trade
  4. It provides limited risk
  5. I can move into an iron condor if we get back up to the 34-ish range

I put my breakeven below 24 because that would be confirmation that demand did not come into the market and I should get out of the trade. It's currently working but might reverse again, but my risk is well defined and I've got bearish trades to offset it so I'm not worried about it.

AAPL Trade Idea #1: Selling AAPL Puts

I mentioned yesterday on stocktwits that I was going to be covering 3 possiblities for the dead-steve-jobs trade. Currently the stock is off 5.5% and looks like it could be heading lower. The markets are broken and the internals are currently weak, so be careful. These are countetrend plays so manage risk accordingly. Here's the first trade:

Sell AAPL Feb 75 Puts 4.50 or better

This strategy is done on the basis of stock acquisition and is a bullish play. It's got limited upside and unlimited downside, but the assumption is that you would want to buy AAPL at this price anyways. Here's the risk profile:

If you are called away, it puts your basis in at 70.5, which is well below the 52 week moving average. There is unlimited risk on this play and it should only be taken if you are comfortable with getting assigned AAPL stock. If the stock does shoot up then you should get a gain from both your delta and vega exposure, as the volatility will start to come out of the name.

Your max gain is the credit you received, or 4.55. And if your basis is 70.5 if called away, that's a 6.4% return on basis within a month. That's a pretty good trade.

TLT Support Holding

I mentioned last week that there was a good amount of price support for TLT, and it seems to be holding. This is bad for the "reflation thesis" which I outline in the new Members Video.

New Trade Idea: MS Bear Call Spread

This one comes courtesy of the iVolatility.com Trading Digest:

Morgan Stanley looks to be near resistance at 20 and since the entire financial sector remains in doubt and will take some time to improve we think this may be an opportunity to for a call credit spread.

Buy MS Feb 22 call MSBV .95 IV 78.55 Delta .3292

Sell MS Feb 20 call MSBD 1.725 IV 85.53 Delta -.4807

Credit .775 Position net delta -.1505

I think this is a great play. Your area of profitability is anything below 21.40, and there's a good chance resistance will hold as we could see further deterioration of market conditions. I'm going to be picking some of these up at the open, probably at a better price since MS is up premarket. If the trade works, I'll move into a condor.

If you liked this idea, you can watch our Members Only Video, which has profitable trade ideas like this one.