Ahh the AAPL iPhone release. I , without a dougt think it will be a great product. That being said, on to tradng. I am looking at the chart and I see a top. The news and the date have been in the news sooo much, I can only think that that information has already been priced into the stock.

We look at the IV, and it is spiking. I have been watching the IV for a while, and AAPL usually does not hold and IV over 45% for very long except for earnings.

SO here is my take, after the announcemet a drop in IV and a slight decline in the price. “Buy the rumor, Sell the fact”, has worked well for me with AAPL. I am looking at the 140/145 Call spread. The 135/140 is an option, but with a lower IV. Since we expect a drop, the 140/145 is a better option.

[Update : AAPL went down from the start of the session. I could not make the trade, at my parameters, so I didn’t make the trade. Never rush a trade.]

Well, a new options cycle has opened up, for Aug ‘07. There are always four months trading in equity options, 2 near-term and 2 far-term expiration months.

Originally , there were three option cycles for option expiration, which traded out 9 months.

JAJO - January, April, July, and October
MJSD - March, June, September, and December
FMAN - February, May, August, and November


But people found that boring and wanted more chances to trade. So the CBOE, a ‘friend’ of traders decided to also have the near two months trading.

Take AAPL (Apple Computer ) for example, it has option expiration for Jul 07 , Aug 07 , Oct 07 and Jan 08. Jul 07 and Aug 07 are the nearest two months, while Oct 07 and Jan 08 are from the JAJO expiration cycle. I always use AAPL for my examples, but hey , I love the stock.

Now on to Equity LEAPS, or Long-term Equity Anticipation Securities. All equity LEAPS contracts expire in the month of January. The expiration date is the Saturday following the third Friday of the expiration month.

So AAPL LEAPS run Jan 2008, Jan 2009, and Jan 2010.

Disclaimer : I do not own AAPL shares at this time.
The glider in the picture is a two seat T31 glider once used by the RAF and Air Training Corps.

I didn’t get my ‘flys on AAPL, but I did get a few bear call spreads. So I am going to run thru my thought process on the way I looked at trades. So first is my general thought process on option trading. This is a speculative trade,so I don’t follow my normal rules on option trading. I also limit my speculative trades to a smaller part of my account.

[1] Look and analyze the situation,[2] Look at the market,[3] Find the best strategy to fit that trade,[4] Worry about how much pain you will be in if you get it wrong., [5] Make the trade.

Well, I looked at AAPL, and I had an opinion. When I looked at AAPL the morning of the conference, the options had not moved to a point that I would have been comfortable placing on a trade.

So here is how I made the trade.

[1] Look and analyze the situation
I thought that IV would spike on AAPL options and then an IV drop , same as what happened last year’s WWDC. ( It turned out I was wrong on both counts. But that would have been taken care of because my other rules stopped me from taking the trade )

[2] Look at the market
Monday morning, the IV’s didn’t move the way I needed them to move. I ended up not taking the trade because I could not get a wide enough profit band. I guess when Cramer is talking about it, it is hard to outguess everyone. But the JUN 135/140 calls had a really high IV, and they were cheap. So I looked for a way to trade those.

[3] Find the best strategy to fit that trade
When I looked at AAPL the morning of the conference, the options had not moved to a point that I would have been comfortable placing on a trade. By looking into the options ‘playbook’ showed that bear call spreads would work and I would feel comfortable with trading them. I normally do not trade bear call spreads ( or credit spreads for that matter ), but that was the best tool for the job. The options were expiring in the next four days, and no news, earnings or takeovers on the horizon for the next four days, so I was cool with that.

[4] Worry about how much pain you will be in if you get it wrong.
Using my std dev spreadsheet I calculated that it would take a move of two standard deviations to move me into the red. SO I took the trade. I didn’t get the trade until 1 pm, but I got a good price.

[5] Make the trade.
Execution, execution, execution. I got the price I wanted by watching the market. You don’t always get the price you are trying to get, and maybe those are not the trades you should be making.

Funny thing is AAPL got spanked after the WWDC. It seems like people are looking for a reason go go south on AAPL. Moving down after good news is usually a bear sign.

I will make money on my bear calls anyway. It would take a three standard deviation move to put me out of the money. And when I bought the spread, it was a bear credit spread, NOW it is a debit spread to get in.

Disclaimer: I am long AAPL in my non options account

With the JUN expiration so close, I didn’t get the bump in IV that could hae let me make the trade. Oh well, don’t rush trades, there will always be another day.

I did put some limit orders in for bear calls.