Snowflake stands as a popular stock with option traders, is enjoying a nice uptrend and also sits on Investor's Business Daily's Leaderboard. As a result, we're looking at an unbalanced iron condor for Snowflake, with a slightly bullish bias.
This can be achieved by trading more put spreads than call spreads. As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.
First, we take the bull put spreads. Using a Nov. 21 expiration date, we could sell two put spreads with the 210-200 strike prices. That spread could be sold for around $1.90 a share in a 100-share contract this morning. Further, selling two contracts would generate $380.
Then the bear call spread gets placed by selling the 300 call and buying the 310 call. This spread was selling for around 75 cents per spread this morning.
A Slight Bullish Bias
Trading two put spreads for every one call spread gives the trade a slight bullish bias, but also more risk on the downside. In total, the iron condor will generate around $4.55 or $455 of premium.
The profit zone ranges between 207.73 and 304.55. Calculate this by taking the short strike of 300 and adding the premium received. On the downside, the breakeven takes the short strike of 210 and subtracts half the credit received since it's doubled up on the bull put spread.
The maximum risk is on the call side. It's simply the width of the strike (10) less the premium received or $545. That is if Snowflake finishes above 310 at expiration. The maximum risk is larger on the put side.
Since it is a double spread, the width of the strike is doubled (20) and then the premium received is subtracted. That means this trade would lose $1,545 if Snowflake finished under 200 at expiration. Since this is a risk-defined trade, now matter how much further it goes against you, the long call or long puts offset further losses.
If we take the premium of $455 divided by the maximum risk of $1,545, this iron condor trade has the potential to return 29%. Traders might calculate a stop loss in this case based on 25% of capital at risk, or around $380.
Snowflake Stock Ratings
Investor's Business Daily gives Snowflake stock a Composite Rating of 97 out of a best-possible 99, an Earnings Per Share Rating of 79 and a Relative Strength Rating of 90. According to IBD Stock Checkup, Snowflake also ranks second in its group.
Snowflake's results are due around Nov. 19, so this trade contains earnings risk if held to expiration.
Please remember that options are risky, and investors 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.