In addition to the trade that Dan laid out (here), we looked at a few other alternative structures that we didn’t execute ourselves. However, we wanted to lay out these other structures as attractive potential trade ideas for those with the appropriate risk appetite and trade objectives since the structures also appealed to us from a risk/reward perspective.
The first trade is one of our favorite structures for those already long the stock (and for very aggressive traders, it can also be done as a standalone trade if margin in the account is sufficient):
Theoretical Overlay Against Long Stock:
AAPL ($466) Buy Oct18th 475 / 495 1×2 call spread for a $0.30 credit
-Buy 1 Oct18th 475 call for 12.50
-Sell 2 Oct18th 495 calls at 6.40 each (12.80 total)
Break-Even on Oct18th expiration:
-Profits of the stock btwn 466 and 495, up to 29 on the stock, and up to an additional $20.30 btwn 475 and 495. Stock called away at 495, but have made an additional $20.30, or a little more than 4%.
This is a great structure for those who want to play for a bounce but don’t want to double down on their existing stock position.
Selling a Strangle Outright, or Against Long Stock for Incremental Yield:
AAPL ($466) Sell the Oct18th 450/495 Strangle at $15.50
-Sell 1 Oct18th 450 Put at $9.10
-Sell 1 Oct18th 495 Call at $6.40
Break-Even on Oct18th Expiration:
Profits: Between 434.50 and 450 and between 495 and 510.50 make up to 15.50, max profit of 15.50 between 450 and 495
Losses: Below 434.50 and above 510.50, with linear losses beyond those levels.
Trade Rationale: This trade takes advantage of the elevated implied volatility on today’s big down day to collect more than 3% of premium in AAPL for the next 5.5 weeks. Given the strong underlying support at the downside breakeven around 435, and the strong resistance at the upside breakeven around 510, the probability of a winner on this structure is high. We like it as a structure for those with a stock position for incremental yield, or even as a potential outright options structure for those who find the structure appropriate for their trading style and account.