GOOGL Iron Butterfly
Today, I am looking at an interesting trade set up in GOOGL. For over the last month, GOOGL has been trading in the 530 to 560 range. The strategy would look to take advantage of that continuation.
- I’m looking to enter into a GOOGL iron butterfly in May 5 expiration period that is 16 days from expiration (expiring on May 29th). GOOGL is currently trading in the 542 area.
- Look to sell the 540 put and buy the 520 put, and then sell the 545 call and buy the 565 call. This gives the trade a 45% probability of profit or probability that the price will stay between the breakeven of the strategy. Currently, you can put the trade on for a credit of around $11. It will be $2000 in margin if doing 1 contract and you will subtract your credit from that so the cost of the trade should be around $900-$1000.
- Take the trade off at a 10% profit or a 15% loss. Again, look for GOOGL to continue being range bound through the rest of the month.
Hey Dan,
Do you think it will be in this range because you believe the tech sector has stabilized? Plus, the highest GOOG got to today was $534 and is at $530 today, did you do this trade a few days ago?
Since GOOG is closer to the bottom of the range than top, and I see the range as $520-$570, what would you think of a bullish 510/505 put vertical with same expiration, (at ~18 delta) with 14% max return if it does indeed bounce? The plan is if $520 is broken, I make an iron butterfly at $510, cutting margin and hopefully recovering some of the loss with the bearish breakout, and if it does spike up to the top of the range, making the trade into a condor when the price gets to $560 at the ~18 delta point and increasing my expected return to 20%, max loss 5% (assuming it happens before Friday. If after Friday, I’ll happily take my victory to the bank)?
–Jay
Mark…I think I’m missing something…what chart are you looking at? I see a range for GOOGL of $ $529-$584 over the past month.
Also, is this really an Iron Condor, not Iron Butterfly, since the short strikes are not the same?
Main takeaway, though, is that you believe GOOGL to be range bound and this structure will take advantage of that.
Thanks,
RalphK
Hi, Jay,
Thsi trade is using GOOGL not GOOG. The liquidity is better in GOOGL generally.
Hi Ralph,
I used an approximate range. This a “split strike: iron butterfly where you sell the strike above and below where it is currently trading. I then manage it as I would a normal iron butterfly. And yes, range bound is is our thought fro this trade.