Trading Options AAPL against SPX

havent done this in a while,but I concur, he should take the ratio of SPY/AAPL and start there..You can beta adjust it,vol adjust..I would check the ratio of the historical rolling implied vol as well as the ratio of SPY to AAPL..Scaaawwwwy 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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taowave said:
havent done this in a while,but I concur, he should take the ratio of SPY/AAPL and start there..You can beta adjust it,vol adjust..I would check the ratio of the historical rolling implied vol as well as the ratio of SPY to AAPL..Scaaawwwwy trade
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It seems much easier to use ETFs and Indices as a retail trader.
 
Its not the IV diverging,its the price ratio going bonkers(AAPL outperformance).You are correct that depending on IV levels,he MAY be able to short spreads in AAPL and go naked long SPY vol.


newwurldmn said:
a spread doesn't change the fact that AAPL and SPX will diverge in realized vol and in direction quite a bit.
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Gambit said:
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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taowave said:
havent done this in a while,but I concur, he should take the ratio of SPY/AAPL and start there..You can beta adjust it,vol adjust..I would check the ratio of the historical rolling implied vol as well as the ratio of SPY to AAPL..Scaaawwwwy trade
More...

In colin bennet's book, I remember a section where he compared/backtested the different methods and beta adjusting was the most accurate. Of course then there is the problem to decide on which timeframe to calculate beta :banghead:
 
also, going back to the original topic, you should watch the rolling correlation of the two and try shifting it back n times. If the correlation relation is not holding well over different periods, then this is a red flag
 
AAPL much more correlated to QQQ. A call spread on the pair?

Why not just long/short the pair instead with an appropriate weighting?
 
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