Considering Our Options – $AAPL Fly

by CC May 1, 2013 3:23 pm • Commentary

With AAPL a few dollars above our sweet spot in our fly it’s a good time to revisit the trade and consider the different options we have here. To recap, going into earnings we put on a bullish range trade that looked like this:

12:14 PM EDT – APRIL 23, 2013 BY ENIS

TRADE: AAPL (~$405) Buy June 385 / 435 / 485 Call Fly for $14.75
  • Buy 1 AAPL June 385 Call for 32.47
  • Sell 2 AAPL June 435 Calls at 10.03 each for a total of 20.06
  • Buy 1 AAPL June 485 Call for 2.34


With the stock here the fly is worth about 21.50 and right at our sweet spot. The risk to the trade at this point is a move down or up away from this spot in the near term. What’s important though is that intrinsically this trade is currently worth about 48. What that means is that there is alot of time premium left in the trade that will continue to decay. Currently the decay or theta on the entire structure is about 11c, meaning if vol is unchanged and the stock is in this general range the position gains 11c a day. That amount increases each day as we move forward in time.

So the two things to consider here are whether having the stock near its sweet spot is good enough to take the money and run, or since the stock is hanging near its 50 day moving average is it worth sticking around to try to capture more of the premium decay left in the trade.

There’s really no bad exit here. Exiting this trade now for a nice profit basically takes the chance off the table that the stock makes a break one way or the other from this spot, holding on to the trade has a lot of room for error as the premium decay covers a decent move either way with breakevens higher and lower from here.

We’ll continue to hold the trade for now, but will keep an eye on it if it looks like a strong move from this area starts to commence.