Grinding into new highs on falling vol (AAPL case study)
A stock grinding into new highs on falling vol is more likely to stall than break out.
That's the whole thesis of how I find delta trades. Three checks. One technical, two on the vol surface.
The technical check comes first.
I use whatever tells me spot looks high or low in its range. RSI, Bollinger Bands, whatever's on the chart. Nothing fancy. Just a rough marker for "this looks extended."
Then I go to the options market to see if the read is backed up.
The first vol check.
What did vol do into the move?
If a stock's making a new high and vol's been falling as it goes, the dealer community is probably long vol, and that positioning tends to act as a cap on the stock. Mean reversion becomes quite likely.
Compare that to a rally where the calls are getting hoovered up and vol's going higher with spot. That smells a lot more like a breakout, and I stay out of the fade.
The second vol check.
Skew.
When both vol and skew are diverging from what spot is doing, that's the potential mean-reversion signal. Vol tepid or falling on the way up. Skew leaning more toward puts. Both saying the options market doesn't share the enthusiasm on the chart.
When those three line up, a put spread or a call spread does the job cleanly, depending on which side of the range you're fading.
Right now, AAPL is a good example.
Skew's moving deeper into put premium. Vol's doing nothing. Dealers are swimming in long gamma at the top of the range. The chart is drifting into what looks like an exhausted move.
The fade lines up on all three checks. Which is when it becomes a trade worth pricing.
How I stack a technical read on top of a vol read on top of a skew read is one of the specific workflows in my frameworks. Same order every time, and the trade only goes on when at least two of the three are agreeing.
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