AVSPY: Trading NASDAQ Alpha Index Options
I think many of you know I am not exactly the biggest Apple(AAPL_) lover in the world. In fact, when I write a piece on AAPL, I know that my piece is likely to be well read, but not well regarded. Today should make AAPL fans happy as I kind of, sort of like the stock here. The problem is I do not like the market and I still think the SPX could dip down below 1275 and possibly 1250. In that time, I expect AAPL to be sitting on its floor or to possibly even rally. It seems anytime the stock falls into the low $330s, AAPL sees bottom fishers.
In the past, if I hated the market and liked AAPL, I might have done a SPDR S&P 500 ETF(SPY_) /AAPL pairs trade. Today, however, I want to try one of the new Nasdaq OMX Alpha Options, in this case NASDAQ OMX Alpha AAPL vs. SPY Index(AVSPY ). Professor Robert Whaley of Vanderbilt University is the creator of the CBOE Volatility Index(VIX_) and helped NASDAQ OMX bring the Alpha series to market.
With AVSPY down to near $132, I think the packaged swap could easily pop to $133 or $134 (probably not much beyond that though). A trader can buy the July 132/134 call spread for about $0.95- $1.00, I think this is a decent value that could be traded out of in a few days for a 25%-50% return if the index runs back above $133.
Trade: With AVSPY trading $132.25 buy to open AVSPY July 132 calls for $3.20 and sell to open July AVSPY 134 calls at $2.25.
Net buy AVSPY 132/134 call spread for $0.95.
If the spread gets to $1.25 in the next few days, get out. If it falls below $0.70, I would sell.
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