The implied volatility of BABA has gone through the roof recently. The existing level of 43% is one of the highest readings in the last 12 months. When the bad news was digested, the IV might drop while prices stabilize could look at an iron condor trade for Alibaba stock.
It's the best time to open an iron condor to take advantage of IV decline and time decay, with the expectation that the stock will not move too much in either direction.
Setup:
Bull put spread
October 15 expiry
sell the 145 put and buy the 140 put.
+ 70 cents per share.
Bear call spread
October 15 expiry
Sell the 195 call and buying the 200 call.
+70 cents per share
Target range:
143.55 - 196.45
Maximum return:
70 cents+70 cents=
$1.40 in premium.
Maximum risk:
5 (the spread distance) – 1.45 x 100 = $355.
Stop loss (optional)
Stop loss could be set for ron condor.
i.e. SL is based on the premium received. In this case, we received $145, so we could set a stop loss at 1.5 times the premium, or a loss of around $217.
Warning:
Options trading are risky, and investors can lose 100% of their investment.
It's the best time to open an iron condor to take advantage of IV decline and time decay, with the expectation that the stock will not move too much in either direction.
Setup:
Bull put spread
October 15 expiry
sell the 145 put and buy the 140 put.
+ 70 cents per share.
Bear call spread
October 15 expiry
Sell the 195 call and buying the 200 call.
+70 cents per share
Target range:
143.55 - 196.45
Maximum return:
70 cents+70 cents=
$1.40 in premium.
Maximum risk:
5 (the spread distance) – 1.45 x 100 = $355.
Stop loss (optional)
Stop loss could be set for ron condor.
i.e. SL is based on the premium received. In this case, we received $145, so we could set a stop loss at 1.5 times the premium, or a loss of around $217.
Potential Return
The premium ($145) and divide by the maximum risk ($355), the potential to return 40.85%.Warning:
Options trading are risky, and investors can lose 100% of their investment.