For this week’s options Trade Of the Week we will take a look at Twitter (Symbol: TWTR).
Over the past 3 months, we have seen some big moves back and forth on many of the tech names.
TWTR first saw a big move higher to start the year from $22 all the way up to $37. Over the past week and a half we have seen price pullback to the $31 level.
In many cases, after a stock has seen big moves back and forth like this you will start to see a period of chop or consolidation kick in.
Options Trading Gives Us Opportunities
Instead of going to the sidelines and not doing anything on TWTR, we can utilize an Iron Condor to generate some income during this choppy stretch. The Iron Condor strategy looks for a stock to stay inside of a tight range or a “Profit Window” as we like to call it.
For this trade we will utilize the April monthly options with 28 days left to expiration.
You will notice that TWTR has an IV Percentile of 48. Any number above 40 here means the options are more expensive. This will allow me to collect more premium which in turn gives me a wider profit window to work with.
- We will be selling the April monthly 33.5/34.5 call spread
- Selling 29/28 put spread at the same time.
Our break even points will be at $34.02 and $28.48. These 2 break even points define our profit window.
As long as price stays between these 2 numbers we make money. We also make money from time decay adding up and from volatility decreasing. This trade gives us 5 different ways of making money.
We will track this trade over the next few weeks to see if TWTR does move into a choppy pattern here. If it does we will be looking at a really nice profit from the Iron Condor.
Coming into this week we had 2 open trades from previous Trade Of the Week articles.
Let’s take a look at where those trades are at.
We sold the March 23 335/337.5 call spread for $.85 or $85 per spread. The nice part about this trade was that it only tied up $165 of capital per spread to put it on.
With NFLX being an expensive stock these spreads are a great way to participate without a ton of capital.
This trade will expire worthless for us today which means will get to keep the entire $85 per spread that we collected to put the trade on.
We booked the full profit due to NFLX moving lower here over the last week.
The second trade is from last week’s article which was a long put option that we bought on QQQ.
We bought the April monthly 173 put for $4.12 or $412 per contract. We sold out of this long put for $5.58 on Monday of this week when Target 2 was hit at $168.61. This gave us a profit of $146 per contract. Not a bad return for getting in and out in less than 2 trading days.