Get Another Bite of This Apple

02/28/2014 8:00 am EST

Focus: OPTIONS

Mark Sebastian

Founder, Option Pit LLC

After a disappointing first quarter earnings report, Apple stock swooned, and Mark Sebastian of OptionPit.com offers an options trade based on cheap Apple implied volatility levels.

Every so often, typically a few weeks after AAPL earnings, traders go a little overboard in selling AAPL option premium. Well, it's been a few weeks since AAPL earnings, and traders have sold AAPL IV down to stupid cheap levels...again. Take a look at a chart of VXAPL (the VIX of AAPL).

chart
LivevolX® www.livevol.com
Click to Enlarge

Every time traders take AAPL vol down like this, it ends up biting them in the hind quarters. I think there is a strong chance that AAPL IV will start to get a bid and/or the stock will start to move. In either case, owning options looks like a decent play at these levels

The Trade
A calendar spread or straddle swap in AAPL near the money seems to make some sense with IV low, and HV low as well.

By Mark Sebastian, Blogger and Contributor, OptionPit.com