This is why we don’t sell cheap straddles: ?We noted Tuesday that AAPL IV was at extremely low levels into its earnings announcement yesterday. ?Looking at a two year chart of AAPL 30 day IV one will notice this was the cheapest IV has been over that period of time.

042414Sebas1

LivevolX (r)?www.livevol.com

The weekly straddle that expires Friday went out at an insanely cheap 22.00 a pop. ?For AAPL, where typically one might expect more like 30 and on the low end at LEAST a 5% move, priced in 22.00 is an outlier…as in amazingly cheap.

042414Sebas2

LivevolX (r)?www.livevol.com

Those that took advantage are doing extremely well tonight as it appears they will come close to doubling their money on a straddle. ?We are not saying that it was a GREAT idea to buy the straddle ahead of time (hindsight yes, ?in reality, maybe not), however it clearly was not a straddle that should be sold. ?Recognizing stuff that is too cheap to play into events is one key all retail traders can learn.

The Trade:

WATCH THE VOL, DO NOT SELL EARNINGS STRADDLES THAT ARE TOO CHEAP!!!