Iron Condor on RIMM

As we get closer to expiration day, I like to look for this type of trade.

The Iron Condor on RIMM

With this type of trade it is really important to define some levels of support as well as resistance. You also need to have a good and reasonable exit plan.

Not seeing any catalyst to push RIMM above Resistance at or near 80 in the next week. Support at least for the short term (the next week) at or near 70. Will 70 hold up? I have identified it as resistance until it was broken on Friday the 1st. One rule that I have found to be useful is that when resistance is broken it tends to act as new support. So that is what I am going on here. At least for the short term…

SET UP on MAY 6th:
STO the May 80 Call and Simultaneously,
BTO the May 85 Call for a Net Credit of $1.16

STO the May 70 Put and Simultaneously,
BTO the May 65 Put for a Net Credit of $0.34

Total Credit = $1.50 x 10 Contracts = $1,500
Total Risk = $3.50 X 10 Contracts = $3,500

This is about a 40% Risk/Reward Ratio.

Max Reward ($1,500 - commissions) is ONLY achieved if the stock price remains between the 2 short options and the options expire worthless.
Where this trade losses is if the stock trends outside of the BreakEven (BE) points. There are 2, upside BE and downside BE.

Upside BE = 81.50
Downside BE = 63.50
What this tells me is that from the time this trade was initiated (May 6th) to the Saturday Following the 3rd Friday (Expiration) of May the stock can move as high as 81.50 and as low as 63.50. That is 18 point gap. RIMM was trading about $77 that day so this give me about a 5% cushion on the upside and about 17% cushion to the downside.

This trade is going to take full advantage of TIME DECAY or THETA
As long as the options remain out of the money (OTM) they will become cheaper and cheaper, so in the case IF i needed to close one side of the trade or the other, it would not cost me as much to close as the credit received when I opened the trade. For more clarity on the GREEKS contact me via email: coachnuge@gmail.com

EXIT PLAN:
Primary Exit defines what I am going to do if...based on my expectations? That would be stock trades between 70 and 80 per share till expiration, I would need to do nothing, options would expire worthless. Max Reward would be achieved Minus commission of course. If your commission is say $1.00 per contract that would be 10 contract per leg and there are 4 legs to this trade. That would = 40 x $1.00
Profit = about $1,460 ($1,500 - $40)
Return on Investment = 41%

Secondary Exit defines what am I going to do if my expectations are wrong? The Secondary Exit is really design to help control my FEAR of losing everything...don't want that to happen so first I am going to pay close attention to my BreakEven Points and if things are to close or setting up to break out up or down I am looking to close the trade early. So I am watching the news surrounding the stock and the industry as a whole. Paying close attention to volume (is it rising or falling, this helps to identify momentum building or slowing down)

That fact of the matter is that I am playing the Iron Condor like I would if I had a Bear Call and a Bull Put on the same stock.
If RIMM breaks down below my support at 70 I will not be looking to take the assignment of the Short Put and buy the stock. I know what I can afford and RIMM at 70 is not something I can afford at this time. If I cannot close the Put side of the trade without taking a big loss I will look to ROLL the whole trade out to the next month using lower strikes. NEED TO KNOW THE MATH...How this will affect the new credit, look back at my technical analysis, can support be validated with the new time frame (next 30 days or so?) If yes, I am doing it making the adjustment and reestablishing my new exit plan.


Any Questions Contact Coach Nuge via Email: CoachNuge@gmail.com