Trading Options AAPL against SPX

M

marwanco

Because AAPL and SPX are highly correlated, I want to sell ATM call options in AAPL and buy ATM 1 call option SPX, both are 50 delta, cant figure it out , how many AAPL calls I need to make the position neutral, do I use underlying price ratio or call option price ratio?

The Idea is to sell AAPL which is higher IV than SPX.

Example : AAPL Call 143=$1.2, SPX Call 3650 =$22.30

price ratio=3650/143=25 or 22.3/1.2=18

Thanks
 
A crazy, dangerous trade. There is a very good reason why a single name will have higher vol than the index.

Study Dispersion Trading as well.

One way of calculating the ratio is by comparing notional values or dollar delta with a beta adjustment. Not simply price or premium.
 
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marwanco said:
Because AAPL and SPX are highly correlated, I want to sell ATM call options in AAPL and buy ATM 1 call option SPX, both are 50 delta, cant figure it out , how many AAPL calls I need to make the position neutral, do I use underlying price ratio or call option price ratio?

The Idea is to sell AAPL which is higher IV than SPX.

Example : AAPL Call 143=$1.2, SPX Call 3650 =$22.30

price ratio=3650/143=25 or 22.3/1.2=18

Thanks
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beta adjust the delta or the notional (stock prices). That’s what I would do.

it will be a very noisy trade.
 
newwurldmn said:
beta adjust the delta or the notional (stock prices). That’s what I would do.

it will be a very noisy trade.
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Why not "de noise" this trade by turning each part into a spread? Less profit but if and when the two IVs diverge, losses won't be severe.
 
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