Below is a daily/weekly chart of McDonald’s Corporation (MCD), $153.56.
Trade: Consider selling the following $5 wide Iron Condor: sell Jul (7/28) $157.5/162.5 bear call spread and sell Jul (7/28) $148/143 bull put spread (7 Days to Expiration (DTE)) for around current mid-point of $1.21/share. NOTE: Earnings 7/25, and this is meant to be an earnings trade with yearly highs of implied volatility.
Technical Setup: Range bound, time decay strategy into earnings (although slight bearish bias).
Option Strategy: Iron Condor (IC). Simply, is selling both an out-of-the-money Call Spread and an OTM Put Spread. Defined risk strategy used when you expect a stock to stay range bound by expiration. You make maximum profit (net credit received) if the stock closes between the short strikes at expiration.
The return on investment (ROI) is the credit received divided by the maximum loss (i.e., width of strike prices of the largest spread less total premium received). The break-evens are the short put strike price less credit received and the short call strike price plus credit received (i.e., also your cost basis if assigned the stock).
Considered a neutral strategy since we are expecting range bound activity. Trade has positive theta (meaning you make money on time decay) making it a high probability trade since we time entry with the technical pattern.
Max Gain: Credit received, 32% ROI ($1.21/3.79) if expires worthless.
Stop Loss: $147.98 on downside; $156.82 on upside, close entire position.
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra
Managing Director and Pristine Founder
Dan Gibby
Chief Options Strategist
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