Today is a potentially great day to trade intraday straddles on AAPL options.
Risks of Intraday Straddle Trade on Expiration Day
The risk is relatively high with intraday straddle trading on expiration day. Long option positions will experience rapid price decay due to accelerated time decay and volatility collapse.
This means that you should modify risk management. Normally I trade with up to 5% of my trading capital at risk. For intraday straddles on expiration day I will modify this to 1% of capital at risk since there is a real risk that I will lose the entire investment.
High profit probability of AAPL intraday straddle
AAPL options make for potentially great intraday straddle trades on expiration day. Have a look at the data on Friday. This shows that 28% of open to close event for the past 365 days were less than 0.5 standard deviations. This shows that AAPL options exhibit anomalous volatility. Since options are priced according to the normal distribution model, approximately 40% of events should fall within 0.5 standard deviations.
Trading Strategy for AAPL options straddle
For this option strategy I will invest a conservative amount of money as outline above. I will open the trade after the first 5 minutes of trade in order to let volatility settle as the underlying nears a strike price.
Currently the dollar value of one standard deviation for AAPL options is about $10. I will set a predetermined closing order for a price equivalent to a one standard deviation move. If this trade does not close by the last hour of trade I will close the position to avoid the major volatility drop that occurs just before expiration.
That fact that the futures are pointing downwards and that the markets are bearish today due to poor employment data will aid this trade, since volatility will be elevated hopefully throughout the day.
