Don’t Be Afraid Of!

How do you trade a $2,100 stock?  Very carefully!!!!!!! Actually, it should be treated the same as any other stock you evaluate.  In the Option Volatility Signal Room we dissected the potential move on earnings today no differently than we do any other stock, and came to the conclusion that placing an Iron Condor signal was the best Reward/Risk possibility:

The expected move on earnings after the close of the market today is approximately $130, which gives a potential range of approximately $2,040 – $2,300.  That’s certainly a large move and large range from a dollar standpoint but really only 6% expected move in the stock.

We are trying to take advantage of higher implied volatility going into the earnings print, and thus higher option premium.  We are looking to sell this week’s expiration $2,035/$2,030 put spread and this week’s expiration $2,315/$2,320 call spread (IRON CONDOR) for a CREDIT of $2.00.

The break/even points in the stock on a move after earnings are $2,033 and $$2,317.  Anywhere between those prices and we will make money on the signal. If the stock does move outside of that range, we know our risk, which is the beauty of trading spreads.  The maximum the spread can ever trade is $5, the width of either the call or put spread.