Trading an Iron Condor as AAPL Sits Rangebound

After the earnings miss on AAPL,the stock has traded a $100 price per share move to the upside, hitting an all time high of 674.88 on Aug. 21st, 2012. This of course is riding the coattails of major bull run on the major indices and in anticipation of the iPhone 5′s big debut. Since then the stock has since a pull back down to 648.11 as the most recent low. A technical trader may be able to indicate a major period of consolidation before any further moves on the daily chart. A “wedge” which is a typical pattern of consolidation has lower highs and higher lows from a periodic view, where volatility starts of strong and slowly decreases until the end of the wedge is met.

In this circumstance, I am currently trading the decrease in volatility and taking a chance on AAPL to remain rangebound at least for the next week. I have opened a few “Iron Condors” with a $20 range between strikes to balance the level of risk for return. Today, when AAPL was trading near the 663 range after bouncing of the low near 655, I opened an Iron Condor by selling to open the 660 puts and the 680 calls, and buying to open the wings ending at 640 puts and 700 calls for a net credit of $8.30. As long as AAPL remains between 660 and 680 by next Friday’s expiration I will realize my maximum profit of $830 per condor on this trade. The break even points of this trade are at 651.70 and 688.30.

There are only 5 trading sessions remaining for this trade with time decay rapidly increasing in my favor. Indicators to take profits or minimize losses would be a break out to the upside above 675 or losing support below 655.

Disclosure: I am long AAPL

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Post Written By: Mark Et My name is Mark and I am an options trader as well as a full time school teacher. I focus on minimizing risk on while still creating well over 25% to 100% returns on options scalping and complex strategies. My goal is to help you to better understand the basic factors involved with options trading, balance risk and reward, and providing winning plays on the market leading stocks. Come in and land some huge trades with me in TheStockMarketWatch chatroom!