AAPL

O

oldnemesis

http://www.marketwatch.com/story/4-reasons-to-sell-apple-shares-2016-03-18?siteid=yhoof2

http://finance.yahoo.com/q/ks?s=AAPL+Key+Statistics

http://finance.yahoo.com/echarts?s=AAPL+Interactive#{"range":"2y","allowChartStacking":true}

Trade:
Jan '17 140/145 bear call spread for a net credit of $30
Yield = 30/470 = 6.4% in 306 days or 7.6% annualized
Prob = 93%
Expectation = .93(30) - .048(470) - .022(235) = 27.9 - 22.56 - 5.17 = 0.17

Note: I do not trade AAPL because it is too volatile a stock for my methodology (note its beta) and is too subject to surprises. Thus I will not be making this trade in my account.

After seeing the Marketwatch article I simply looked to figure out if a trade would be possible.

It's interesting (to me at least) that my calculated expectation on the trade is almost exactly zero. This signals to me the traders in AAPL have been watching their numbers and are trading it purely on statistics.

:)
 
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oldnemesis said:
http://www.marketwatch.com/story/4-reasons-to-sell-apple-shares-2016-03-18?siteid=yhoof2

http://finance.yahoo.com/q/ks?s=AAPL+Key+Statistics

http://finance.yahoo.com/echarts?s=AAPL+Interactive#{"range":"2y","allowChartStacking":true}

Trade:
Jan '17 140/145 bear call spread for a net credit of $30
Yield = 30/470 = 6.4% in 306 days or 7.6% annualized
Prob = 93%
Expectation = .93(30) - .048(470) - .022(235) = 27.9 - 22.56 - 5.17 = 0.17

Note: I do not trade AAPL because it is too volatile a stock for my methodology (note its beta) and is too subject to surprises. Thus I will not be making this trade in my account.

After seeing the Marketwatch article I simply looked to figure out if a trade would be possible.

It's interesting (to me at least) that my calculated expectation on the trade is almost exactly zero. This signals to me the traders in AAPL have been watching their numbers and are trading it purely on statistics.

:)
More...

From all your posts I have always wondered where do you get the Probability from? It is a honest curiosity, is it from the moneyness of the 140 Call ?
 
" is it from the moneyness of the 140 Call"

No.

It is simply from the log normal price distribution. i.e. it shows where the spread falls in terms of recent pricing. I don't use the probability in the colloquial sense but strictly as a locator of the trade in terms of recent price activity.

The reason I list it at all is that it pops up when I enter the trade in my trading platform. (OptionsXpress)
 
oldnemesis said:
" is it from the moneyness of the 140 Call"

No.

It is simply from the log normal price distribution. i.e. it shows where the spread falls in terms of recent pricing. I don't use the probability in the colloquial sense but strictly as a locator of the trade in terms of recent price activity.
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I see, but how do you compute that lognormal distribitution? In other words, what mean and standard deviation do you use for it ?

I ask this because of course we don't know that the distribution will be in the future (if we knew, we could be immensely rich by now), so I'm curious on how confident are you of that number.
 
"of course we don't know that the distribution will be in the future"

Yes you are right. That's why I say I am not using 'probability' in the 'colloquial sense'. In my posts the future probability (in the colloquial sense) is much more indicated by the news references I quote than in probability distribution of PAST prices. Sometimes (e.g. in the case of acquisitions) PAST prices are completely irrelevant.

The 'probability' I post is just a statistical calculation (like Beta). It does show where my trade falls in terms of PAST price behavior but may well have no relevance in light of recent news.
 
oldnemesis said:
"of course we don't know that the distribution will be in the future"

Yes you are right. That's why I say I am not using 'probability' in the 'colloquial sense'. In my posts the future probability (in the colloquial sense) is much more indicated by the news references I quote than in probability distribution of PAST prices. Sometimes (e.g. in the case of acquisitions) PAST prices are completely irrelevant.

The 'probability' I post is just a statistical calculation (like Beta). It does show where my trade falls in terms of PAST price behavior but may well have no relevance in light of recent news.
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Fair enough, it is clear now to me.

Incidentally, option prices do carry information about future expectations, in particular a binary call will be priced in such away that reflects actual probabilities (at least the ones the market is assigning at this time).

Because Apple binary calls are hard to find, you could approximate one with a vertical spread, in fact the spread you are trading is the closest approximation to a binary call for the 145 Strike. You could extract a decent probability with the (135/140) vertical and perhaps you could use that one for your computation of expectation.

Just some ideas.
 
Is there any reason one wants to make this trade if the outcome is not too attractive? I know you did not do this trade but if someone is trading AAPL (I know someone who exclusively trades AAPL options) should he consider doing this?

Thanks.
 
ironchef said:
Is there any reason one wants to make this trade if the outcome is not too attractive? I know you did not do this trade but if someone is trading AAPL (I know someone who exclusively trades AAPL options) should he consider doing this?

Thanks.
More...


It's just a simple OTM CREDIT SPREAD - nothing more, nothing less. If your friend is familiar with Options 101 he will be able to figure it out.




:)
 
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