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NEW YORK (
Strategic Mindset: Market neutral with possibilities of surges in volatility.
(RIO) trading at $53.99.
Commit Criteria: RIO implied volatility is overpriced relative to its forecast volatility of 4.58% over the time frame of this trade. We are looking for possible price movement but for it to stay within its $50 to $57.50 price range until the exit of this trade. This is a slightly more aggressive in the
Top Gun Options
Advanced Model Portfolio due to the strikes we needed to use.
Opening 20 RIO May 2012 Iron Condors (strikes
) for a $0.58 credit
Tactical Employment of Iron Condor:
Buying to Open 20 RIO May 2012 $60 Calls
Selling to Open 20 RIO May 2012 $57.50 Calls
Selling to Open 20 RIO May 2012 $50 Puts
Buying to Open 20 RIO May 2012 $47.50 Puts
Net Credit: $58 per Iron Condor for a total of $1160.00
Max Gain: $1160
Max Risk: -$192 per Iron Condor for a total risk of -$3840
We will be watching for a price movement near the short strikes. If the short strikes are threatened we will adjust the Iron Condor as necessary.
We don't want trade expectancy dropping below 2%. Based on this, we have two price targets at which we need to consider an adjustment. RIO trading below $50.51 and above $56.47 are triggers for an adjustment in our Advanced Model Portfolio.
We will wait for this Iron Condor to expire worthless taking the $1160 credit as profit.
We will wait for this Iron Condor to expire worthless, adjusting as necessary.