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Watch full video ↗The speaker sets up a call diagonal spread for Apple, buying the October 310 call and selling the September 325 call. The trade is based on the belief that Apple's implied volatility is low, creating cheap options, and that a rally from 310 to 325 would result in a significant profit. The speaker emphasizes the importance of keeping risk in check and the potential for a 30% return on the debit paid.
The speaker is long a 15-point wide diagonal spread on Apple, paying less than $10 in debit. They believe that even if implied volatility drops to 19%, the trade would still be profitable. The trade is considered low risk due to the narrow IV range and the potential for rolling down the spread to reduce risk. The speaker also mentions the possibility of adjusting the trade to a crab trade if a sell-off occurs, but prefers the diagonal spread due to its lower upside risk.
The trader is adjusting a diagonal spread in response to potential market volatility. By moving the spread down to a narrower range, the trader aims to reduce the cost and increase the potential credit received. If the market moves significantly downward, the trader plans to roll the position into a calendar spread, which can provide additional credit during a sell-off. The strategy relies on the assumption that the market movement will be within a predictable range, allowing for profitable adjustments.
The speaker emphasizes the importance of analyzing implied volatility (IV) when setting up trades, particularly for equities like Apple. They suggest using IV as a key indicator on charts by accessing it through indicators, which provides a 30-day reading of IV. The speaker notes that Apple's IV has remained above 25% throughout the year, with the current level at 26%, close to the year's low. This analysis helps in identifying potential opportunities for trades, especially when IV is low, as it can lead to cheaper options and favorable gamma.
The speaker emphasizes the importance of analyzing implied volatility (IV) to identify potential trade opportunities. They note that Apple's IV has been relatively stable, with a range of 20% to 35% over the past year, indicating a small range of IV movement. This suggests that buying premium in this range could be less vulnerable to a significant volatility crush. The speaker also highlights that the current IV rank of 42 is influenced by the historical low of 19% in December 2025, which is only 7 percentage points below the current level. This low print is considered a good sign for trades as it provides a buffer against potential volatility drops.
Adjusting spreads in response to market volatility can help manage risk and optimize returns. By moving a diagonal spread down to a narrower range, traders can reduce the cost and increase the potential credit received. This strategy is particularly useful during a market sell-off, where the extrinsic value of the spread can be maximized by moving closer to the money. However, the effectiveness of this adjustment depends on the magnitude of the market movement, with larger declines potentially reducing the overall profit.
The speaker explains that moving the trade in the money would reduce extrinsic value cost but increase the cost of buying intrinsic value. This could lead to higher losses if the market tanks. The speaker prefers buying at-the-money options to maintain a balance between risk and reward.
TakeawayMoving a trade in the money increases the cost of intrinsic value and risk of losses if the market moves against the position.
The current implied volatility for Apple is 26%, which is close to the low of the year at 25%.
TakeawayThe current IV is near the low of the year, suggesting potential for a trade based on volatility analysis.
Gap risk in an earnings trade refers to the potential for a significant price movement following the release of earnings, which can lead to losses if the trade is not properly adjusted. The speaker notes that this risk is higher in earnings trades compared to other strategies.
TakeawayEarnings trades carry higher gap risk due to the potential for large price movements post-earnings release.