Update 1/20/2022: I exited my short iron condor position on DAL 29 days before expiration, for a $1.50 debit per contract/share, a profit before fees of $36 per contract. Shares were trading at $39.93, down $1.22 from the entry level.
The Implied Volatility Rank at exit was 15.2% down 9.7 points from the entry level.
I exited below my target of 25% of maximum potential profit as a test of a more rapid exit strategy for earnings plays.
Shares declined by 3.0% over eight days for a 135.3% annual rate. The options position produced a 24.0% return for a 1,095% annual rate.
I have entered a short iron condor spread on DAL, using options that trade for the last time 37 days hence, on February 18. The premium is a $1.86 credit per contract share and the stock at the time of entry was priced at $41.41.
The Implied Volatility Ratio stands at 24.1%, lower than I usually prefer, but the pricing allowed for a trade that meets my risk and return standards.
The premium is 37.2% of the width of the positions short and long spreads. The profit zone covers a 9% move to the upside and a 14.8% move to the downside.
The risk/reward ratio is 1.7:1, with maximum risk of $314 and maximum reward of $186 per contract.
How I chose the trade. The trade was placed to coincide with DAL’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincided with the expected move of $1.40 either way, based on options pricing, which gives a price range of $39.70 to $42.36. The Zacks Earnings Surprise Predictor gives DAL a score of 64.06% in favor of a positive earnings surprise.
By Tim Bovee, Portland, Oregon, January 12, 2022
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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