Stock Symbol: BIDU
Option Strategy: iron condor
Date Entered: 10/21/10
Date Closed: 10/22/10 (Oct weekly options expired worthless)
Profit: $92
Return before commissions: 22.55%
Return after commissions: 19.38%
Trade Details:
Buy 1 BIDU OCT10 85 PUT $0.28 $28.00
Sell -1 BIDU OCT10 90 PUT $0.68 ($68.00) Credit
Sell -1 BIDU OCT10 115 CALL $1.05 ($105.00) Credit
Buy 1 BIDU OCT10 120 CALL $0.53 $53.00
Requirements:
Cost/Proceeds: ($92.00) Net Credit
Option Requirement: $500.00
Total Requirements: $408.00
Commission: $12.95
Note: we originally placed a limit order at $0.97 but modified it to $0.92 to assure we got filled. In hindsight, we could have gotten filled for as much as $1.05.
Analysis: We put this trade on to take advantage of the increased volatility in BIDU's options surrounding its earnings release later that day after market close. We used weekly options which expired the following day. We structured the trade so that BIDU could move up or down by nearly 13% in either direction and still make the full profit. On Thursday, BIDU closed at $102.48 prior to its earnings report. On Friday, the stock closed at 107.28, up just 4.68% on its earnings news. Since both the 115 strike call and 90 strike put we sold were well out of the money, these options expired worthless, allowing us to keep the full premium we took in from selling them. On a note of interest, after market close on Thursday, we checked with our broker (OptionsXpress) and found that, according to their probability chart, our trade had over a 99.5% probability of success.
Chart:
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