How to Find Stocks for Iron Condors?

I am often asked how I find stock in which to enter into the Iron Condor strategy.  Not every strategy works with every stock in every kind of market, but I have a set of guidelines or criteria I use when looking for those stocks.

#1  use stocks you would buy 100 shares of in your retirement account

#2  use very liquid stocks near $100 or higher:   Examples would be AAPL, NFLX, AMZN, GOOGL, PNRA, XOM, DIS, IBM, TSLA, LNKD, PCLN, etc.

#3  If I did 4 stock Iron Condors every month, I would trade 2 with implied volatility levels under 25 and 2 with implied volatility levels over 25.

#4  Diversify Stock iron Condors  into at least 2 different industries

 

A good example would be Apple, Inc. (AAPL, $124)   Looking at June 5 Expiration.

Criteria #1: Aaple is a stock I would buy 100 shares in my retirement account.

Criteria #2:  Very Liquid stock, AAPL trades around 200,000 option contracts daily, dwarfing most other stocks in Options Volume. Also, AAPL is high enough price, currently at $124.

Criteria #3: AAPL implied Volatility is around 25 for at-the-money calls, I like stock Iron Condors around 25 level.

Criteria #4: If I was putting more Iron Condors on in stocks, I would add stocks from different industries than AAPL.

 Iron Condor Trade in AAPL:  

Stock around $124.

June 5 expiration, around 30 days from now.

Buy 1  AAPL 138 strike call and sell 1  AAPL 133 call

Buy 1 AAPL 110 strike put and sell 1  AAPL 115 put

Total Credit for 1 Contract of $110. Total margin or risk for 1 contract Iron Condor is $390.

Note: This is a $5 call credit spread and $5 put credit spread.  Margin is $500 less $110 credit, or $390 per Iron Condor, plus commissions.

Breakevens are $139.10 (short 138 call plus $1.10) and $113.90 (short 115 put less $110).  Maximum loss is $390.  If AAPL stays within this range for the next few weeks I would not hesitate to close this position early.

Thanks,   Dan Sheridan  dan@sheridanmentoring.com

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