Paper Trading Journal - October 25, 2013 Earnings Play Slightly Short Volatility Slightly Long Earnings - $AAPL

PL Earnings: Oct. 28 After-hours Profit & Loss at Expiry for Positions (Call Spread, Long Shares):

Source: Custom Graph on JMP v10, statistical software Position consists of a 560/565 Bear Call Spread to expire Nov. 1, 2013: Lower strike (560) is written at bid price $5.95 at 10:00am on Oct. 25, 2013. (Delta of 18) The Higher strike (565) is bought at ask price $5.00. (Delta of 15) Three AAPL shares are bought at ask price of $532.15. (Delta of 1) $5.95 + (5.00) = $0.95 Credit. Initial Delta, -3 Initial Net Vega, -3 Initial Net Theta, +13 $532.15 * (3) = $1596.45 Delta, +3 Initial Position Net: Delta: 0 Vega: -3 Theta: +13 Taking account of greeks may not be very effective considering the possibility drastic changes in weekly option greeks. However, it is still useful to take into account the initial greek values to understand the goal of the trade (short volatility). Furthermore, these initial values may change, due to second-derivative greeks. IV30 vs HV30

Source: LiveVol Pro Though Im not trading 30 day implied volatility, this graph is a good gauge that implied volatility is overbought. This tends to happen pre-earnings; while IV notoriously drops post-earnings. In this trade, I hope to capture this drop in volatility, while remaining slightly bullish on the underlying. 30 Day IV (33%) is trading 13% above HV30. To put this in perspective, the IV for the weekly AAPL options were sold/bought at 55% IV. With a net vega exposure of negative three (-3), I can profit from large drops in IV. Michael Julian