I am looking at an Iron Condor as a potential trade to play AAPL earnings next week.
Sell 1 January 120 Call and Buy 1 January 123 Call.
Sell 1 January 104 Put and Buy 1 January 101 Put.
This is the January 30 Expiration. The credit I am looking for is around $60 per every one contract Iron Condor I do (excludes commission).
Analysis: The credit for this Iron Condor is $60 and the Risk or Margin is $240 per every one contract I do. The yield is about 25% excluding commissions if I collect the entire credit. This is a one week trade. The Expiration Breakeven points are around 120 ½ on the upside and around 103 ½ on the downside. This gives me about 9 points or close to 8% protection on the downside and 8 points or about 7% protection on the upside. The last two earnings for AAPL, the stock didn’t move that much percentage wise.
This is a speculative trade because of the big potential gap that happens with earnings. We won’t be able to adjust the trade until the gap is over with, that is why I consider this a speculative trade. I choose my size by looking at the risk of the trade. If I like this trade and am willing to risk about $500, I might do this trade Two contracts. On this type of a speculative earnings trade, I make the assumption I could potentially lose my entire risk capital. In this case, my risk is about $240 per every one contract Iron Condor I do. I like this trade, but also respect the potential risk, and therefore I am very conscious of how much capital I put into this trade.