Update 1/10/2021: I exited my short iron condor position on PAYX 11 days before expiration, for a $1.03 debit per contract/share, a profit before fees of $92 per contract. Shares were trading at $126.63, up $0.19 from the entry level.
The Implied Volatility Rank at exit was 34.9%, down 11.5 points from the entry level.
I exited because the position exceeded 25% of maximum potential profit, my normal exit point for earnings plays. In the case of PAYX, there was a price gap down at the opening bell that allowed me to exit at 47.2% of maximum potential profit.
Shares rose by 0.2% over 20 days for a 2.7% annual rate. The options position produced an 89.2% return for a 1,630% annual rate.
I have entered a short iron condor spread on PAYX, using options that trade for the last time 31 days hence, on January 21. The premium is a $1.95 credit per contract share and the stock at the time of entry was priced at $126.43.
The Implied Volatility Ratio stands at 46.4%
The premium is 39% of the width of the positions short/long spreads. The profit zone covers a 4.4% move to the upside and an 8.1% move to the downside.
The risk/reward ratio is 1.6:1, with maximum risk of $305 and maximum reward of $195 per contract.
How I chose the trade. The trade was placed to coincide with PAYX’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincided with the expected move of $2.93 either way, based on options pricing, which gives a price range of $123.49 to $129.35.
By Tim Bovee, Portland, Oregon, December 21, 2021
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.
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