Update 4/282015: I exited my AAPL position after it neared maximum profit immediately after its earnings announcement.
Shares declined by 1.2% over one day, or a -443% annual rate. The options positions produced an 83.1% yield on debit, for a +30,314% annual rate.
The consumer electronics company Apple Inc. (AAPL), headquartered in Cupertino, California, publishes earnings on Monday after the closing bell, and the oilfield equipment and services provider National Oilwell Varco Inc. (NOV), headquartered in Houston, Texas, announces Tuesday prior to the opening bell.
I shall use the MAY1 series of options, which trades for the last time four days hence, on May 1
The goal of my trades is to construct direction-neutral positions with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.
AAPL
Ranges
Click on chart to enlarge.
 |
| AAPL at 10 a.m. New York time, 90 days 2-hour bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 137.82 | 142.66 | 133.60 |
| Lower | 128.14 | 123.30 | 121.63 |
| Gain/loss | 3.6% | 7.3% |
The Trade
I chose to go a bit wider than usual, given the wide swings characteristic of the techs. I've placed all of the one standard deviation range in the profit zone but left a portion at the lower end of the chart range uncovred.
short the $125 puts and long the $123 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money
| MAY1 | Strike | OTM |
|---|---|---|
| Upper | 140 | 80.9% |
| Lower | 125 | 79.5% |
The risk/reward ratio stands at 2:1. The premium is $0.59 ($0.31 for the calls and $0.28 for the puts), with shares trading for $132.75.
NOV
Ranges
Click on chart to enlarge.
 |
| NOV at 10:12 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 56.72 | 58.88 | 56.64 |
| Lower | 52.40 | 50.24 | 52.55 |
| Gain/loss | 4.0% | 7.9% |
The Trade
short the $52 puts and long the $51 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money
| MAY1 | Strike | OTM |
|---|---|---|
| Upper | 57 | 76.7% |
| Lower | 51 | 82.6% |
The risk/reward ratio stands at 2.1:1. The premium is $0.32 ($0.19 for the calls and $0.13 for the puts), with shares trading at $54.83.
Decision for My Account
I've opened positions in AAPL and NOV as described above.
-- Tim Bovee, Portland, Oregon, April 27, 2015
References
My volatility trading rules can be read here.
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Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.License
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Based on a work at www.timbovee.com.
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