Crowdstrike (CRWD) is due to report today after the closing bell. The Barchart Technical Opinion rating is a 56% Buy with a Weakening short term outlook on maintaining the current direction.Â
CRWD rates as a Strong Buy according to 20 analysts with 1 Moderate Buy rating. Implied volatility is 64.29% which gives CRWD an IV Percentile of 71% and an IV Rank of 49.27%
CrowdStrike is a leader in next-generation endpoint protection, threat intelligence and cyberattack response services.
Today, we’re going to look at an iron condor trade placed over earnings. These types of trades can be high risk, so make sure you understand how they work before attempting something like this.
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.
CRWD IRON CONDOR
Crowdstrike is sitting right around the 21, 50 and 200-day moving averages. Traders that think the stock might stay at this level over earnings could look at an iron condor.
As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.
The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.
First, we take the bull put spread. Using the September 2 expiry, we could sell the 175 put and buy the 170 put. That spread could be sold yesterday for around $1.00.
Then the bear call spread, which could be placed by selling the 215 call and buying the 220 call. This spread could be sold yesterday for around $0.70.
In total, the iron condor will generate around $1.70 per contract or $170 of premium.
The profit zone ranges between 173.30 and 216.70. This can be calculated by taking the short strikes and adding or subtracting the premium received.
As both spreads are $5 wide, the maximum risk in the trade is 5 – 1.70 x 100 = $330.
Therefore, if we take the premium ($170) divided by the maximum risk ($330), this iron condor trade has the potential to return 51.52%.
If price action stabilizes, then iron condors will work well. However, if CRWD stock makes a bigger than expected move, the trade will suffer losses.
Trades held over earnings allow little room for adjusting, so they can be a bit hit or miss. CRWD has stayed within the expected range following all six of the most recent earnings releases. Although as we know, past performance doesn’t guarantee future performance.
Conclusion And Risk Management
Short-term trades over earnings such as these ones are almost impossible to adjust. Either the trade works, or it doesn’t so position sizing is vital. Short-term trades also have assignment risk, so traders need to be aware of that possibility. This type of trade may not be suitable for beginners.
Please remember that options are risky, and investors can lose 100% of their investment.Â
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, Gavin McMaster did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. Data as of after-hours, August 29, 2022.
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