3 Iron Condor Trade Ideas For May 26th

With most stocks seeing big downside moves and high volatility, we could be due for some consolidation. Iron condors are a strategy that does well when stocks stay relatively flat.

An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for an iron condor is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

Traders should have a neutral outlook on the stock and ideally look to enter when the stock has a high implied volatility percentile.

First, let’s look for stocks with a high implied volatility percentile. 

We can see that Fedex (FDX), Salesforce (CRM) and Snowflake (SNOW) among others have both a high IV Percentile and IV Rank, so let’s use those stocks in our Iron Condor Screener.

Here are the filters:

And these are the results:

FDX Iron Condors

Let’s take a look at the first line item.

Using the June 10 expiry, the trade would involve selling the 190 put and buying the 165 put. Then on the calls, selling the 215 call and buying the 240 call.

The price for the condor is $3.94 which means the trader would receive $394 into their account. The maximum risk is $2,106 for a total profit potential of 18.71% with a probability of 64.5%.

The profit zone ranges between 186.06 and 218.94. This can be calculated by taking the short strikes and adding or subtracting the premium received.

The list shows other trades with a higher profit potential, but lower probability of success.

CRM Iron Condors

The second stock on our high implied volatility screener was Salesforce. Here are the iron condor screener results for CRM:

Let’s look at the first line item using the June 10 expiry. The trade involves selling the 145 put and buying the 120 put. Then on the calls, selling the 170 call and buying the 195 call.

The price for the condor is $6.34 which means the trader would receive $634 into their account. The maximum risk is $1,866 for a total profit potential of 33.98% with a probability of 61.30%.

The profit zone ranges between 138.66 and 176.34. This can be calculated by taking the short strikes and adding or subtracting the premium received.

SNOW Iron Condors

Snowflake was another stock with both a high IV Percentile and IV Rank from our initial screener.

Here are the screener results for SNOW:

The first example uses the June 17 expiry and involves selling the 120 put and buying the 95 put. Then on the calls, selling the 145 call and buying the 170 call.

The price for the condor is $11.20 which means the trader would receive $1,120 into their account. The maximum risk is $1,380 for a total profit potential of 81.16% with a probability of 46.70%.

The profit zone ranges between 108.80 and 156.20. 

Mitigating Risk

Thankfully, iron condors are risk defined trades, so they have some build in risk management. Position sizing is crucial to ensure that minimal damage is done if the trade suffers a full loss.

One way to set a stop loss for an iron condor is closing the trade if the loss is greater than 1.5 times the premium received. The first example on FDX received $394 in premium, so a stop loss could be set if the trade is down $590.

Iron condors can also contain early assignment risk, so be mindful of that if the stock breaks through the short strike and its getting close to expiry.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

*Disclaimer: On the date of publication, Steven Baster did not have (either directly or indirectly) positions in some of the securities mentioned in this article. All information and data in this article is solely for informational purposes. Data as of after-hours, May 25, 2022.