Wednesday, May 2, 2012

$RL May Trade setup

THESIS: RL is has more downside than upside potential from here. Today's move seems like it's on relative low volume. The trends of Moving Avgs seem to be changing directions to head lower. At the same time, it seems that RL has a bunch of committed fans that should provide brakes on the downside. For this I am looking to strangle it in the 165 to 185 range for the next 17days.

CHOICE: I chose the May options because they are free of earnings announcements (it announces 5/22pre) Of course there is always the risk of pre-announcement but I can't assume all that which has not happened;-)

Time period: May
Trade type: Iron condor
Strikes: 165/160 - 185-190
Premium: .95 Mark. Likely to get .84ish
Theoretical chance that RL upper leg 185 will expire worthless for max upper gain is 79%
Theoretical chance that RL lower leg 165 will expire worthless for max lower gain is 86%
reward to risk is about .2 so max loss (dollars at risk) if doing 9x is 3750




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As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.

THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.