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.]

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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.

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[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

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I did put some limit orders in for bear calls.

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AAPL IV is in the fortys. After his highness jobs gives his keynote, I think the stock will rally to the 130 level from 125, with a drop of IV of 5%~7%. The drop is not as big as earnings.

ARRGGHHH My computer power supply died.

Ok, I am back. I am soooo glad I have Apple Care. Ran down to the Apple store and they just replaced my power supply in 5 min, no questions asked.

So I have a spreadsheet that calculates all of this. I put in the IV, dates, etc and it returns the scenarios for a butterfly. I could use OptionVue if they made a OSX/Linux version. But they don’t. Rat Bastards.

So I am looking for a one-two day trade with a pretty wide range given a IV drop of 5%

Whatever, I won’t know until Monday morning opens. I will pull or not pull the trigger about 10:30 am EST.

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Commercials Confirm June 29 Launch Date For Apple’s iPhone

DOW JONES NEWSWIRES
June 3, 2007 9:27 p.m.
NEW YORK (AP)–Apple Inc.’s (AAPL) highly anticipated iPhone will be available June 29, according to TV commercials broadcast Sunday night and posted on the company’s Web site.

AAPL IV has bounced between 51.79% and 23.34% during the last year. The last big spike was around Jan earnings, then the big drop off. I picked the right stock and direction, but IV came to bite me in the ass. ( Yes, I lost money when IV fell )

AAPL: DAILY 1 YEAR VOLATILITY CHART

Apple has never really held IV’s over 45% for long, and this being summer ( Sell in May , go away ), I think high IV’s will be harder to maintain.

I will look to put on positions starting about the 22nd, and closing out about 10 days later. When IV hopefully drops. I am not betting on the stock price here, I am trying to play IV. I think a lot of people will bid up the price on the options, hoping for a move around the release of the iphone. They may get it, but whatever happens, IV will probably fall.

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