Apple Inc. (AAPL) is around $128.40, up over $2 as I write this Blog. The stock is up about 16% for the year from the $110 level. The range over the last six weeks has been between $125 - $132.

At this level, the stock is in the middle of the range and I am looking at a relatively delta neutral income trade. What does delta neutral mean? Not really leaning long or short deltas, no opinion (hoping for little stock movement over the near term).  What does Income Trade mean?  A trade that is positive Theta (option time decay works to our advantage), my short options decay at a quicker rate than my long options. AAPL June 12 Expiration (6/12/15) in the Calls (about 29 days from expiration in these Weekly options).

The Trade:

Buy one June 125 strike call, Sell two June 128 calls, Buy one 131 call.  Total Debit: $0.48 ( $48). This is an at-the-money call butterfly. A butterfly will always be in a 1 X 2 X 1 ratio.  I did it earlier today 3X6X3 at $0.50,   3X6X3 at $0.49  and 3X6X3 at $0.48. That's called scaling into a trade. I did the quantity 3X6X3 at three different price levels. Why?

I was trying to see what price the market makers really wanted to trade this at. Mid prices (difference between three different bid/ask spreads) were $0.50 when I first started trading this, and I got filled pretty quickly. It was pretty easy to get filled near mid. As the AAPL stock price started increasing slightly over $128 , the price of the butterfly decreased a bit, that's when I got filled at $0.49 and $0.48. You pay the most for a call butterfly at the strike of the short option. As the price of the underlying moves up or down away from the short strike, the butterfly will trade for less.

Option volatilities in AAPL are around 21%, the lower end of the range. I don't mind the low option volatility for this trade because I like the expected range where I can make money in this trade and with earnings out of the way.   I don't see AAPL implied volatility levels rising much over the next 14 days.

My Plan:

I would like to be out of this 29 day trade in about 12-14 days. AAPL shares over $132 or under $124 I may look to adjust or get out. In between the prices over the next 12-14 days, I can make anywhere from 1% to 40% (commissions may impact the return). Closer to the short strike I make more (AAPL remains near $128), farther away from the short strike, I make less. AAPL usually trades more option contracts daily than any other stock. AAPL averaged over 200,000 plus option contracts daily in April, the 2nd place stock in average daily volume was FB with around 55,000 option contracts traded daily.  The liquidity in AAPL options is good, making it easier to enter into and exit the trade with limit orders.

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