calendar

Many of my option mentoring students LOVE AAPL.  AAPL might be heading for some real problems here in the near term.  If not problems, at least some serious volatility.  How can I tell?  While some traders will point toward the stock breaking its 50 day and 100 day moving averages,  I would point toward something else,  volatility.  Since AAPL stopped whipping around in the spring and bottoming out in May, the stock has had two major characteristics:

1.  The stock has almost moved in a straight line higher

2.  The Option Volatility has been relatively low

Today,  the Option IV officially broke the high since AAPL took off in mid May:

What makes a successful calendar spread?  It's actually pretty easy to figure out:

1.  Buying low overall Implied Volatility

2.  The right spread between months

In other words,  being able to buy the back month option for a cheap price and then, relative to the back month option, being able to sell the front month option for an expensive price.  Here are a few things that don't matter:

1.  The time frame of the trade

2.  The Theta (if you are using spreads as a theta play and not trading the vols, you will lose)

3.  What months are bought and sold

Calendar spreads can pop up in odd places in some of the most active names.  For instance, take a look at December IV vs Jan IV in AAPL:

Today, on Bloomberg TV's 3 vs Trish our COO and lead option educator Mark Sebastian discussed an earnings play on Jabil Circut.  The trade market discussed was a long calendar spread for .30:

I promise this will be one of the only Facebook options posts I put up over the next few weeks.  However, I wanted to make sure that I pointed out a few interesting tidbits about options on facebook that, maybe, the average retail trader might not have noticed.  Stuff everyone should know before reading the rest of this piece: