Google-parent Alphabet is stuck in between its 50-day moving average near 160 and its 200-day line near 171. This could make for a great iron condor setup for Google stock.
Iron condors can produce a return that stays within a specified range over the trade period. This can be a welcome change for buy-and-hold investors who rely on markets always going up.
Let's look at how we might set up an iron condor on Google stock. On May 13, we looked at an iron condor on Tesla, which thus far is working well.
An iron condor can be set up via a combination of a bull put spread and a bear call spread. First, we take the bull put spread. Using the July 18 expiration, we could sell the 150 put and buy the 145 put. That spread could be sold for around 40 cents a share.
Iron Condor Premium Is $90
Investors then place the bear call spread by selling the 190 call and buying the 195 call, and sell it for around 50 cents a share. In total the iron condor will generate around $90 in premium.
The profit zone ranges between 149.10 and 190.90. This can calculated by taking the short strikes and adding or subtracting the premium received. This is quite a wide range for a stock like Alphabet. As both spreads are five points wide, the maximum risk in the trade is $5 minus 90 cents and multiplied by the 100 shares in the contract. That amounts to $410.
Therefore, if we take the premium of $90 divided by the maximum risk of $410, this iron condor trade has the potential to return 21.95% in slightly more than one month.
If price action stabilizes, then iron condors will work well. However, if Google stock makes a big move the trade will suffer losses.
One way to set a stop-loss for an iron condor is based on the premium received. In this case, we received $90, so we could set a stop equal to the premium of $90.
Google Stock: No Earnings Risk
Note that Alphabet reported earnings in mid-April, so there's no earnings risk here.
According to Investor's Business Daily's IBD Stock Checkup, Google stock ranks sixth in its group and has a Composite Rating of 88, an Earnings Per Share Rating of 97 and a Relative Strength Rating of 46.
A similar trade recently involved a bull put spread on DoorDash. This also has done well and potentially can close early for a nice profit.
Please remember that options are risky, and investors also can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a masters in applied finance and investment. He specializes in income trading using options, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
