Trade Details & Summary

AAPL Call Calendar (LIVE Opening Trade)

Look behind the scenes as I use our new watch list software to quickly filter and find this AAPL call calendar spread trade during overall low implied volatility in the market.

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In this video, we are on the hunt for a low implied volatility calendar spread trade. Right now, the market is low implied volatility. There's not too much that has high implied volatility that we're already not involved in.

In fact, we're already in some PVR. We're already in some EWZ which also has high implied volatility right now. We're going to go out and look for a couple of low implied volatility trades, try to trade a calendar directionally to take advantage of the low implied volatility and hopefully the move up in implied volatility.

The first thing that we usually do just take a look at our watch list here at Option Alpha. Right now, it's sorted highest implied volatility to lowest. We're going to re-sort the list lowest to highest because again, calendar spreads profit most from actually just a rise in volatility versus a movement directional in the stock.

And then what we're going to do is we're also going to filter in earnings only. And the reason I do this is because usually as a stock approaches earnings, then we want to possibly trade that because volatility might rise as we get closer to earnings. Not all the time, but it might rise. If it's low, it might rise heading towards profits.

Right now, I see Apple pops up immediately, and I can just hover over the icon here for earnings. I know the earnings is on 4/25, so earnings are coming up just beyond April expiration. If I open up this IV rank for Apple here, you can see that the system automatically tells me that right now, based on implied volatility, best trades for us right now are calendars, ratio spreads or debit spreads.

And again, we already said that we're going to go after a calendar spread. If we go to Apple here, we can see Apple has had a nice little rally off of the bottom, and it does in fact, have earnings coming up on the horizon and volatility is low. And we know that Apple usually has a run-up in volatility heading towards profits.

Sometimes it doesn't happen as much as other times like this time back in September, October, but it had a nice little run-up heading towards earnings back in January. And since it's so low right now, we're just hoping that Apple needs a decent run-up or it should experience a decent run-up in earnings or implied volatility heading into earnings.

Right now, we're going to play Apple with a calendar spread. Now with calendar spreads, you can choose to go directionally on these. That's the way that we do them. I, in this case, am going to go a little bit bullish in direction, meaning I'm going to center the calendar spread probably somewhere around 110.

We'll see what the pricing looks like, but somewhere around 110 because we need a bullish trade in our portfolio. It's not that I'm necessarily bullish on Apple or necessarily bearish or whatever the case is. I'm just centering this trade a little bit higher than where Apple is trading because we already have a lot of bearish positions in our portfolio. We could use something that profits from a little bit of a bullish move in the stock if that's the case.

I'm going to go here into the trade tab. There are a couple of different contract months we can look at. First, I want to look at again, always the front month option, in this case, which is the monthlies in April, and then we're going to combine that with the back month options which are May.

We'll be selling the front month options, buying the back month options which are the May. And then we open this up. And it's important to realize that not all of the strikes sometimes are available in both contract months.

In fact, if I just show like let's say 8 strikes for each contract month here or maybe let's do 10, you can see these are the April expiration options, and these are 10 strikes that are available, but they have mainly differences of $1, so a strike price difference of $1 across the board.

If I open up the May contracts, you can see that that's not the case yet. They'll probably open up more strikes later on, but right now, there's most of the time about a $5 difference in the strike. For example, if I wanted to do the 107 calendar spread in Apple, I couldn't do the 107 because there are no 107 strikes in the May expiration month.

You got to make sure that you're doing strike prices that are the same in each month. And again, we're going to target something just slightly out of the money because that's usually what we do with these calendars. We want to play them a little bit directional; we don't want to play them too neutral, but we don't want to be real, really far out either.

Now, I'll show you the difference here in a second. All we have to do on the April side is just right-click on the April's, go over to buy, go down to calendar, and then that's going to bring up this calendar spread order.

Again, it defaults automatically to the next available contracts when you do this which are the weeklies. And we don't want the weeklies, so all we have to do is just change these to the May expiration. And you can see now that changes the price and now it makes the calendar spread a little bit more expensive.

But the key here is just to go ahead and right-click on that and analyze that trade over on your risk profile. Now that we see that trade here on our risk profile, again, the stock is trading right here at about 105.59 today, and you can see that our calendar is primarily centered around 110. We're hoping that the stock rallies a little bit or that implied volatility expands.

In this case, like I said, I usually like to have that lower side breakeven point just below where the stock is trading right now, but there are not too many choices. We can either do the 110s, the 105s which puts us neutral. If we did the 105 strikes, it puts us roughly neutral over the stock.

I want to be a little bit directional because that's what we need in our portfolio. If we went all the way out to the 115s though, we'd be real, really too directional. We'll be all the way out here at 115; the stock is trading here. We really would need the stock to move about $3 or $4 before we even start making money at expiration.

Again, there is a trade-off here. You can be too directional in some of your calendar spreads. The way that we like to trade them and the way that we've found success trading them is to be just slightly directional in how we trade these. Again, I like the 110s.

Selling the April 110s, buying the May 110s which are the back-month gives us a debit of about 162 for each of these. Again, the impact on volatility for this calendar is going to be the biggest difference. In Thinkorswim, you can show the impact of let's say a 10% move in volatility.

I just typed in 10 here. And watch what happens to the payoff diagram when I hit enter. And you can see that now that we have a 10% move in implied volatility or if there was a 10% move, notice how wide the payoff diagram becomes. Again, this is no impact on the actual stock price.

The stock is still at the same price. It's just if implied volatility rises; then this whole calendar expands in profitability. And again, that's why they work great from an area of low implied volatility to an area of high.

That's why we have them on our watch list and show you, "Hey look. These are the best options strategies when implied volatility rank is low like it is in Apple." Again, that's what we're going to try to do here. We're going to try to get this thing filled.

We're going to make two contracts for these calendars. Let's see if we can get it filled at 162 which is the price that it's going for right now. We're going to go ahead and place that order in. Apple is relatively liquid, so we should be able to get filled fairly quickly.

You can see we've got some other working trades in here today, but right now, it's trading right at the 162 mark, so hopefully we get filled here. We'll pause this video, come back and see what we can get.

Alright, here we are back just a couple of minutes later. It didn't take too long to fill here with this calendar spread in Apple. But we did get filled here with those two contracts, so now we're looking to take profits at a 25% profit target.

Once the value of this debit spread goes up 25%, that's ideally where we're is going to take profits on a calendar spread like this. We'll take profits early as always with these long option strategies because we don't have the implied volatility edge in our favor.

We're just directionally playing this right now and hoping for a move up in implied volatility which I think we will get in this case with Apple as we head towards earnings, but we still need the stock to either stay pretty still or directionally move higher at this point.

As always, I hope you guys enjoy these videos. If you have any comments or questions, please ask them right below. And until next time! Happy trading!

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