[Options] The Right Trade for This Environment

Sean McLaughlin
April 15, 2024

In today's Flow Show, me and Steve Strazza took a look at some potential directional bets, but we both agreed that the right trade for today is one that would benefit from some sideways trading action.

With the broader markets looking a bit indecisive here, making a strong directional bet (in either direction) feels like a high-risk proposition. But there's a big cap name currently stuck in a range that is offering us nice options premiums to bet on further sideways action. We'll likely have to hold through an earnings event to earn our profit, but with a defined risk and a large margin for error, I like our chances.

Here's a chart of Deer & Co. $DE:

And you can see here that implied volatility is indicating that options premiums in $DE are pretty elevated:

The high options premiums coupled with the need to protect ourselves due to a pending earnings release (May 17th), sets up a good opportunity to employ a defined-risk Iron Condor trade.

Here's the Play:

I like selling a $DE June 340/350/430/440 Iron Condor for approximately $3.15 net credit. This means I'll be short equal amounts of 350 puts and 430 calls, and long the same amount of 340 puts and 440 calls to define my risk:

As long as $DE stays north of $355 per share or south of $430 per share (my short options strikes), then I'll keep this trade on and patiently wait for my profit target to get hit. I'll leave a resting GTC limit order to buy-to-close this entire spread for $1.55. This will capture 50% of the premiums I collect today, booking the profit.

Generally speaking, I like to cover Iron Condors for profits at 50% of my original trade entry. This increases my odds of success, and it's just good risk management.

If we see any $DE closing price below $355 per share or above $430 per share, this will be confirmation that the $DE range is expanding and I'll want to exit this trade for whatever it costs to close it. I may still earn a smaller profit in this scenario, but likely it'll be a manageable loss.

If you have any questions on this trade, please send them here.

If you missed my most recent ASO video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7910.

Filed Under