AAPL ($132) has traded between 121 and 135 since February 11. Moreover, two thirds of all trading days has produced a range between 125 and 130. This range bound activity has resulted in implied volatilities in nearer term tenors to contract sharply (30 day readings have been reduced from 30% to the current 19%).This scenario has presented itself three times since February 2012 and has always occurred within one month of an earnings release.
Ex. 1) February,2012
AAPL had "found a home" in the $450 range and IVs contracted sharply to 17% in the nearest weekly series. As this "disgust" with volatility manifested itself, AAPL stock took off and rallied to the $644 level by April,10.30 day IVs also rallied sharply from 18% to 40%.
AAPL was stuck at the $600 level shortly after the release of July earnings and IVs responded in kind. Once the speculative froth was removed from the option markets and buy writers were willing to accept less premium for their two month 5% OTM calls , the stock climbed to 704 by early September.
Ex3) April, 2014
AAPL reported good earnings and the stock moved higher and plateaued at the $560 level. Speculators cashed out and 30 day paper traded at the 18% level. AAPL then rose from $560 to $655 within one month.
Today, roughly one month post earnings, AAPL 30 day IVs are at the 19% mark and we think that they present an excellent opportunity to see if history will repeat itself for the third time. The following is a trade idea that would perform very well if AAPL were to perform in a similar vein:
BUY 2 AAPL JULY 135 CALLS
SELL 1 AAPL JULY 130 CALLS
TOTAL DEBIT .10
We are leveraging technical with volatility metrics and buying what we believe is the cheapest asset on the "AAPL board"; optionality. We will profit greatly on an outsized rally and lose a dime if the stock were to sell off and close below the $130 level at July expiration.