All things considered, the tech sector is holding up well. This gives me some comfort that this is an area we can sell some delta-neutral options premium to ride out this market volatility.
But we’re going to do so carefully, defining our risks and playing it conservatively.
Check out this chart of the Technology Sector ETF $XLK:
The horizontal lines on this chart represent areas we can sell April options premium at that feel far enough away for me to like our odds.
We’re going to get involved with an Iron Condor.
Here’s the Play:
I like entering an $XLK April 125/130/150/155 Iron Condor for approximately $1.40 credit. This means I’ll be short equal amount of 130 puts and 150 calls, while protected by equal amounts of long 125 puts and 155 calls. The PnL graph for this trade looks like this:
As long as $XLK stays with our short strikes, then we’ll be in position to profit. I’ll be leaving a resting GTC limit order to close this spread for a .70 cents net debit. This will represent a capture of 50% of the original premiums collected today. This is a best practice I employ with Iron Condors.
Meanwhile, we’ll be watching price action and if we see $XLK close above 150 or below 130, that’s my signal that our rangebound thesis is wrong and I’ll want to exit the trade to prevent any further erosion of my trading capital.
If you have any questions on this trade, please send them here.
ASO subscribers who missed last week’s live video Jam Session where we reviewed activity in our options portfolio from the past week can catch it here.
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: 323-421-7991.