TL;DR:
Good morning from Germany, don't hate me too much, we used to be brothers back in the golden days of Reddit!

Apple events are often a playground for vola vola vola. There are many ways to play this potential chaos, and the so-called "Reverse Iron Albatross Spread" is ONE setup if you believe the stock will move within a certain range after the Apple event!

Thanks to u/Battleham_117 for the homework; I genuinely enjoyed writing this 🥺❤️

You might consider this little game if you think that volatility will DROP after the event – but only if you're a bit familiar with this options magic. But let’s dive deeper, "fellow degen" 😘

What is this Reverse Iron Albatross Spread?

A Reverse Iron Albatross Spread (I like the Germanised version way more) is a strategy for options enthusiasts who want to benefit from a decline in implied volatility (IV) and time decay (Theta). This strategy is often used in markets with high IV, where a drop in IV is expected, typically after a major event – like the upcoming Apple event (Tear me apart already, will ya 👀).

Setup:

1. Sell 1 Out-of-the-Money (OTM) Call:

   • Example: Sell the $AAPL Oct 20 $150 Call.
   • Goal: Collect premium. You profit if $AAPL stays below $150.

2. Sell 1 OTM Put:

   • Example: Sell the $AAPL Oct 20 $130 Put.
   • Goal: Collect more premium. Profitable as long as $AAPL stays above $130.

3. Buy 2 far OTM Calls:

   • Example: Buy two $AAPL Oct 20 $160 Calls.
   • Goal: Protect against strong upward movements. Limits losses in a strong upward move.

4. Buy 2 far OTM Puts:

   • Example: Buy two $AAPL Oct 20 $120 Puts.
   • Goal: Protect against strong downward movements. Limits losses in a strong downward move.

So, this structure mainly offers one thing: Flexibility! You collect premiums by selling calls and puts, while limiting your risk in case of extreme price movements. The position remains profitable as long as $AAPL stays within a tight range and IV falls after the event. Probably.

Why might this strategy work?

Introduction to the theoretical market dynamics by Prof. Dr. Dr. u/monchella420 (r/mauerstrassenwetten financial shitposter 🤡):

Before major events like the Apple event, implied volatility (IV) is often very high because many might speculate on significant movements. After the event, however, IV can drop sharply if the expected drama doesn’t happen.

A drop in IV, can be particularly profitable for our Reverse Iron Albatross Spread.

Simply put, I'm really trying my best here you funny speaking degen: If you truly believe that the actual movement of the Apple stock after the event will be smaller than the market expects, this might be a play for you. The idea is that the premiums of the sold options will quickly lose value due to the IV drop, allowing you to close the position with a profit.

*^{I'm not a financial math tutor anymore, otherwise I'd be even poorer}

Riiiiisk, let's go bro:

This approach is, of course, not suitable for everyone, but you are literally on r/wallstreetbets and could play it with your leverage. A Reverse Iron Albatross Spread can be complex and requires a good understanding of the Greeks, that you don't have (neither do I)!

Your potential losses are limited both up and down, but they are still real, so they can really hurt you

When could this be worthwhile?

1. The stock stays within a tight range:
   If you think $AAPL will move within a certain range after the event, the strategy allows you to collect premiums and limit your losses. Let's freakin' go 🚀

2. IV drops after the event:
   If IV is high and you expect it to drop, you can benefit from the IV crush. You're betting that market participants lose their premiums as the "uncertainty" leaves the market. Take the money out of their pockets, instead of putting yours into theirs (probably, no investment advice fam).

Technical Considerations:

• Delta Neutrality:
  This strategy naturally starts delta-neutral, meaning you don’t need a clear market direction to be profitable. As long as the stock stays within the range between the sold strikes, you benefit from Theta (time decay) and a declining IV.

• Theta Advantage:
  As time goes on, like your first love back then*, the options lose value, which is advantageous for you as the seller of the options. Theta works in your favor as long as the stock’s movement remains limited! "Uffpasse," as we say in my parts of Germany (have you ever been to Frankfurt am Main?) 🥺

^{*Shout-out to Lisa, what we had was real, but I've only gotten dumber since, hope you're doing better} ❤️

• Vega is more sensitive than I am:
  A sharp drop in IV will also help you since the options you sold lose value while the ones you bought do not offset the drop to the same extent.

Strategy Approaches, Based on Your Appetite:

You could and should (!) adjust so that it fits YOUR expectations and is consistent with YOUR market view and YOUR risk profile:

1. Conservative Approach – "The Volatility Eater":

• Focus on IV Crush:
  • Choose a time when IV is high and position yourself just before the event. As soon as IV drops after the event, you could close your position (like your brain) and take the profit.
  • Note: It's not only recommended but should be your civic duty (literally) to closely monitor your positions! You must be able to react quickly if IV does not drop as expected 🚬🥺

2. Aggressive Approach – "We hunt this Theta Ting":

• Maximizing Time Decay:
  • Hold your position as long as possible until just before expiration to take full advantage of Theta Decay. This is naturally riskier, as the stock can move more than I do when the UberEats guy rings the bell. But where there's risk, there's also reward (or a total screw-up)!
  • Watch out for movements: If the price approaches the sold calls or puts, you will be forced to take countermeasures, like implementing hedging as the "big boys" without friends or joy in life do. Alternatively: Grab someone and go for some fentanyl. This is still a thing in the US, right?

3. Balanced Approach – "I want it all mentality 🤡":

• Combine everything:
  • Use the IV Crush right after the event and leave part of the position open to benefit from the ongoing time decay.
  • Stay more flexible in your games than in your sexuality behind the Wendy's: Be ready to adjust or close the position if the market moves against you. And believe me, it will 🥺❤️

What to do if the market reacts unexpectedly?

Scenario: The Volatility stays high:
– If IV doesn’t drop as expected, you might lose more than planned. In such cases, you could consider closing or reducing the position to minimize risk. Please do that and don’t give your pocket money to anyone except me 😘

Scenario: Strong price movements in one direction:
– If $AAPL quickly reaches the strike prices of the sold options, you'll need to make adjustments quickly, for example, by hedging (you won't be doing this)

Conclusion:

The "Reverse Iron Albatross Spread" is for those who are a bit familiar with options and want to benefit from the expected IV drop. It's a flexible strategy that allows you to position yourself with limited risk. However, it requires careful observation and a bit of luck – just like my hopes for you ❤️

I hope this post was somewhat helpful and entertained you a bit. If you have further questions or want to discuss this further, feel free to post them here in the comments, or join us? Mods will ban me, not sure what I'm allowed here. Or just use my X streams to ask me dumb questions live 🙌

Stay safe and let’s play wisely. You are okayish, this is my first post here and (probably) my first ban as well. Not "in well", I do not like being in wells.

• u/monchella420 🥺

I translated this partly using DeepL and I am sick of saying you shouldn't be lazy given the current technological advancements. You can see the OP on my Reddit profile page, but it is in german and has our humour (funny, right?) so you will haaaate it even more. A version is also on r/thetagang which is English, I hate crossposting, even tho I am very lazy as you can see. I changed it always a bit, the strategy stays the same and won't be read by anyone.

Mods, is the flair alright? I'm a moderator on r/mauerstrassenwetten and just can't be bothered no more with your shit here.