Readers relatively new to option strategies might recall that an Iron Condor will make money if the stock trades in a range. In general an iron condor is the combination of a put and call spread. The specific transactions in this case are:
Sell Feb $ 80.00 Put Sell Feb $87.50 Call
Buy Feb $ 77.50 Put Buy Feb $90.00 Call
Costco is trading around $84.50. The options were sold for a credit of $79/contract after commissions.
The $80 level is about the 200dma support level, and the $87.5 is near the recent high resistance. This trade is basically a bet that the stock stays within that 10% range.
The trade is not anticipated to be held to expiration date, but If held to expiration:
- Worse case the stock hits new highs over $87.50% or pulls back below $80 and the portfolio will lose $171 per contract. ($2.50spread -.79 credit)
- Best case the stock stays anywhere between $80 and $87.5, and the portfolio keeps the $79 premium. gains $164. That range is a little tighter than CCI would normally like to see in an iron condor, but I think this stock has become a leading provider of "staples" that is more likely to stay stable than most of the market.
- Realistic Case - Around Feb. 1 CCI would anticipate looking to exit this trade. This is after the Jan options expire and are rolled towards Feb, and initial q4 earnings will have been released.