ORCL Credit Spread and CMG Iron Condor

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Credit spread: In tonight's video, I want to go over the two new opening trades that we had today, on December 3rd. Now again, all of this always posted live to the website so you guys can see exactly what we are doing, both the side, the effect, the quantity, the expiration date, the whole ... Everything's here for you guys.

Let's go over first, the Oracle trade that we made. Again, this is a credit spread trade that we're entering so we're net selling options. We're taking in a net credit of about 30 cents on each of these four contracts that we sold in total.

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  • Now, with Oracle, the reason that we got into this trade is that we saw a nice pop in implied volatility today as the stock has started to move down. So Oracle had a big down day. It was down about two and a half percent. And implied volatility is now above that 50th percentile.

    That's what we always like to see as kind of our guideline, our guide post, for how we trade and start to sell options. Directionally, it doesn't matter which way you go. You could sell a put spread below the market if you were bullish and thought that the stock might turn back around.

    We just think that maybe Oracle may continue to make a bigger move and downturn move with the rest of the market. And so, for that reason, we're just playing it a little directionally bearish. And so you can see here that we've tagged this outlook as bearish.

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    With implied volatility in the 53rd percentile and rank, we get a 78 percent chance of success on this trade. It's a very high probability trade and, of course, you can make this is any type of account that you have. The other trade that we got into today is a big, nice, iron condor in Chipotle.

    This is a trade that we tried to get into here and there a couple of times over the last week or so and just finally got something filled today after the markets took a little nose dive after Janet Yellen's comments. So we got into this nice wide iron condor, took in $110 credit on the entire iron condor.

    Again, implied volatility's around the same 52nd percentile. Because we're doing the iron condor strategy, we're completely neutral on outlook. That CMG which is Chipotle is a little crazy right now. It seems like it's a touchy stock. It's had really big moves, and so I wanted to do everything as neutral as possible.

    I don't have any hunch. There's no indicator that I'm looking at. I just want to do it as neutral as possible and just make it a high probability trade. Again, what we ended up doing is selling the 620, 625 call credit spread and the 495, 490 put credit spread. Again, that totals up to that $110 credit that we had.

    We placed each of our short strike legs basically at the 15 percent probability of being in the money. That gets us our total likelihood of success around 70 percent so you can see that short strike on the call side. 495. It's got about a 15 percent chance of the stock being below that level, and then on the top side, you can see our short strike is again, around that same 15 percent chance of being above 620.

    We had a nice, wide iron condor here in Chipotle. Here's 620 and 495 are down here, kind of off the chart. A lot of room for this stock to move and this is our big profit window on this iron condor. It's completely risk defined which means that you can make this trade in any account whether you're trading in IRA or a regular margin account or maybe a Roth account.

    This is a great, easy trade to make and something if you're new and joining our service recently to get started with. As always, hope you guys enjoy these videos. If you have any comments or questions, please let me know. Again, if you're watching this video somewhere else out there online or on Youtube, you just have to understand that you're seeing this video about 20-30 days after it's sent out to our members.

    If you want real-time alerts and a video that goes along with those alerts, like the one we did tonight, you have to sign up for a membership at Optionalpha.com. Until next time, happy trading.

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.