AztraZeneca, a U.K. developer of branded prescription therapeutics, ranks first in IBD's diversified medical industry group. But the Composite Rating is only 63. This, combined with the weakening of the market, makes this a solid choice for our familiar short iron condor.
With the suspicion that the markets are going to be in a sideways grind, punishing speculation and creating more flight to safety, it is my choice to move to powerhouses of industry with giant footprints that will move in a range of motion, but won't collapse or expand much.
The weekly AstraZeneca chart shows that shares sit in a range of motion between 50 and 70, and even when we break these zones, we move back into that range. This reveals the parameters for our trade — the short iron condor — to position during the messy bits of the market motion.
We will be rewarded for waiting at the edges of these regions amid gyrations.
Strategy Works Well For Sideways Trend On Weekly Charts
The short iron condor trade has a $1.30 premium credit, with the total spread between strikes at $2.50.
- Sell to open the AstraZeneca June 16 monthly 67.50 calls, and buy to open the June 16 monthly 70 calls.
- Sell to open the AstraZeneca June 16 monthly 57.50 puts, and buy to open the June 16 monthly 55 puts.
The risk is the distance between strikes, or $2.50. We are collecting $1.30, so the risk to holding the position into expiration is $1.20 plus the cost of execution. This is an excellent risk-to-reward event.
Trade Exploration And Rationale For Decision
First, identify the key chart levels.
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Congestion sits at 57.5 to 55, where all the long-term buyers have been picking up the stock. Resistance shows just above 67.50.
Possible Scenarios For AstraZeneca Options Trade
What could happen:
- The stock moves within and potentially beyond the range but returns to rest above 57.50 and below 67.50 by expiration, yielding the full profit.
- The stock moves into our 50% profit line — when the position is worth around 0.65 — and we exit the trade.
- The stock rallies and moves over 67.50 with volume for more than three days. This means we must exit because the chart is in a breakout.
- The stock fades and moves below 57.50 with volume for more than three days. This means we must exit because the chart is in breakdown.
You can find Anne-Marie Baiynd on Twitter at @AnneMarieTrades and on the IBD website by searching for her name.
