Apple (Nasdaq: AAPL) charged higher during mid-June, but has managed to trade sideways over the past month.
Will it continue its sideways price action, or will the stock move higher or lower over the next month?
Does it matter? And can we truly answer such a question with a definitive answer anyway?
As an options trader and a self-directed investor I really don’t care. I only care about growing my portfolio through income generating strategies.
But let’s get back to Apple.
As I stated before Apple has traded in a fairly tight range (550-590) after its short lived rally in mid-June.
So, how can we take advantage of the stagnant price action?
Look no further than a range-bound trade/investment known as an iron condor.
What is an Iron Condor?
An Iron Condor strategy is a non-directional options strategy that profits when the option on the underlying stock or ETF of your choice expires within your chosen range at expiration.
The basic premise of the strategy is easy: you choose the price range of the trade. Increasing the range will decrease your potential profits, but will increase your likelihood of success.
So, if Apple has been trading between 550 and 590 over the past few weeks and we think it will stay around that area we can place an iron condor trade.
In fact, we can increase the range significantly say 520-640, a 120 point range and still make 13.8%.
This means that with Apple currently trading at $587.41, the tech bellwether would have to breach the 520 or 640 level by July 21st (31 days).
It would take an 11.5% move to the upside or a 8.8% move to the downside over a four-week period before the position is in jeopardy of taking a loss.
Best of all, the probability of success on the trade/investment – a staggering 89%. Yes, that means that there is only an 11% chance that Apple will move outside the 520-640 range over the next 31 days. I like those odds.
When the market is going nowhere fast, the Iron Condor provides safe returns that you can capture month after month – with very little risk.
If you have any questions about the intricacies of the strategy or using probabilities of success as a way to trade/invest please feel free to email me at email@example.com, and follow me on Twitter at @OptAdvantage.