How To Play UnitedHealth Earnings With An Iron Condor Option Trade | IBD | Summary and Q&A

TL;DR

UnitedHealth stock is a good candidate for an iron condor trade, a neutral strategy taking advantage of volatility contraction.

Key Insights

• 🫥 UnitedHealth stock has been consolidating and holding support above its 50-day line.
• 👻 An iron condor trade allows for exposure to the stock without taking directional risk.
• ⌛ The strategy benefits from time decay and decreases in implied volatility.
• ♻️ The potential profit for this iron condor trade is roughly 60% of the maximum risk.
• ✳️ It is important to practice with a virtual account before risking real capital in options trading.
• 😚 Investors can lose more than their initial investment in options trading.
• 😫 Setting a stop loss based on the premium received or using chart levels can help manage the iron condor trade.

Transcript

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Questions & Answers

Q: What is an iron condor trade and why is it a good strategy for a stock with high volatility?

An iron condor trade is a neutral strategy that involves selling a call credit spread and a put credit spread simultaneously. It is ideal for stocks with higher than normal volatility because it benefits from time decay and decreases in implied volatility.

Q: How is an iron condor trade set up in UnitedHealth stock?

In this case, the trade involves selling the 470 put and buying the 460 put, and selling the 550 call and buying the 560 call, all with the same expiration date. The range for potential profit is between 466.25 and 553.75.

Q: What is the maximum risk in this iron condor trade?

The maximum risk is calculated by subtracting the premium received ($3.75 per contract) from the spread width of $10, resulting in a maximum risk of $6.25 per contract.

Q: How can an iron condor trade be managed and what are some possible stop loss levels?

One way to manage the trade is to set a stop loss equal to the premium received, which in this case is $3.75. Another approach is to set points on the chart where the trade will be adjusted or closed, such as around $480 on the downside and $510 on the upside.

Summary & Key Takeaways

• UnitedHealth stock has been drifting sideways, with support holding above the 50-day line.

• The stock is above its buy point and is expected to report earnings soon, which could impact its movement.

• An iron condor trade in UnitedHealth is recommended due to its higher than normal volatility and the potential for profits from time decay and volatility contraction.