(Options Trade Analysis) Free Trade: 03/7/2013

I was getting bored today so i decided to go looking for a fun, weekly trade to make things interesting.
This is the trade I put on in MCD.

 

 

 

Option Trades Analysis

Why this trade?

Well I own MCD stock and I have been waiting for the stock to increase along with the markets but it has been pretty much range bound. It stays above 95 and below 100. So I put on a trade that says,

In the next 8 days: MCD will stay in between 97.5 and 95. That’s a pretty small range, but it is also a small time frame.

Here is the chart:

The red lines are the breakevens.  According to the probabilities this trade has a 60% probability of profit.

Now let’s look at the math.

I got a credit of .56 which for 2 condors is $112. I am using $2.5 spreads, so the margin is $500-$112 = $388.

So $388 is the max I can lose, while the most I can make is $112 or 28.8% ROI in 8 days.

Is this the best trade and best option strategy out there today? Probably not. Is is a good trade? Depends on your reasoning.  Will it provide me a bit of excitement? Yup.

If you have any questions, please let us know on the comments section below and be sure check out our previous blog posts for best options advisory service and awesome tips on how to do option trading for a living.

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7 Comments

  1. Yadao Patil on March 7, 2013 at 2:36 pm

    I have not traded IRON CONDOR before, however, I need to learn more about this strategy.
    Also, I am thinking if there is reward to risk is not high & four trade entries which cost more, how do you justify the profit in this trade?
    I thank you for free trade, May be I don’t understand what you are looking for? Please explain. I appreciate.
    Yadao

    • Genius on March 8, 2013 at 12:32 pm

      The commissions arent very high unless you are with the wrong broker. And the risk/reward is about 3/1 which is not that bad either, especially with over a 60% chance of winning.

  2. Jim Guidetti on March 7, 2013 at 10:41 pm

    What is your strategy plan if MCD goes above 97.5? Are you planning to take the loss or are you going to do an adjustment?

    • Genius on March 8, 2013 at 12:34 pm

      I will hold it until a couple days before expiration and if needed roll it to April monthlies. There seems to be a lot of resistance at $100. It will need a strong catalyst to get it to stay above.

  3. Dave on March 15, 2013 at 10:24 am

    What did you do and at what price?

  4. Jim Curtin on March 15, 2013 at 3:26 pm

    What happened with this trade? It looks like MCD closed today at $99.67

    • Genius on March 18, 2013 at 12:29 pm

      This particular trade did not work out, so I rolled the trade into the monthly options. I moved the calls to 100/105 and kept the puts at the same strike. Thanks to the flexibility of options I was able to do this without adding more $ to the position. But I will have to stay in the trade for a longer time.

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