Apple (AAPL) is holding its latest product launch event Wednesday, Sept. 12. And in nearly every previous instance of this event, there have been movements up to, during and after the event in the stock price.
Because of the binary event oscillation in stock prices, the market makers tend to pump up the options prices for AAPL.
Today is no different, and we are starting Wednesday with an implied volatility rank in Apple at 59. That means that it’s in the 59th percentile of prices over the last year.
Not the highest, but it absolutely will allow us to make a high-probability trade that can profit if the stock moves up, down or goes absolutely nowhere at all.
These types of trades are time sensitive, however, and should only be entered if you have the ability to watch the prices of the options before, during and immediately after the event. By not paying attention to the option chain you could watch a winner turn into a loser within just a few minutes.
Today I’ll be presenting an Iron Condor Trade in Apple in the Sept. 14 expiration. This trade will expire this Friday so it is the most volatile and will react the most quickly to changes in option prices.
To set up this trade we will start by selling the 217.5 Put and buying the 215 Put, and then we are also going to combine that with selling the 232.5 Call and a 235 Call.
Individually, each of these trades has a probability of profit more than 80 percent with both of the strikes sold having a delta of 17. To find the approximate probability of profit you would take 100 minus the delta of 17, leaving 83, which would lead to a very high probability trade.
Now by combining these two trades, we are actually reducing the probability of profit of the individual trades from 83 percent to a combined 72% percent. But by doing so we are taking in more credit, pushing out our breakeven points and potentially exiting with a higher profit if the trade stays within our range.
The breakevens on this trade are above $216.97 and below $233.03, that’s 3 percent below and 4 percent above the current price. The options prices show this trade taking in a credit of $53 and risking only $197, which is less than the current price of 1 share of AAPL at $223.85.
This is why options trading is so powerful. For less than one share of AAPL you have the ability to make a 27 percent return on capital in only two days which has a 72 percent probability of occurring, and it can profit as AAPL moves up, down or nowhere at all!
Now as I mentioned earlier, the options prices will fluctuate. Right before the announcement, the options prices will likely move again, but within about an hour or so after the completion, the prices will likely have dropped with all the uncertainty of where the stock price will go having been removed.
By having sold the trade for $53, you’re wanting the options prices to come down to buy it back at a lower price. I would be looking to take the profits quickly so as to not let the price of AAPL move too much, and then watch your winner into a loser.
Christopher M. Uhl, CMA, MOSM
10minutestocktrader.com
Email: chris@10minutestocktrader.com
Twitter: @10minutetrading
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