As the cybersecurity industry continues to show promising upside, I am choosing another modified short iron condor such as the one suggested in IBM. Today's column features CyberArk Software. Let's look at a short iron condor spread trade in CYBR stock.
My goal in this trade? Find strength and stay there as the market cools off its run while waiting for the next one.
This spread is a neutral to bullish position. It estimates that future prices in CYBR stock will sit in a wider range and allow us to capture erosion in price from the passage of time to deliver steady gains.
CYBR Stock Today: The Set-Up
The modified short iron condor spread for CYBR stock goes as follows:
- Sell to open 1 May 17-expiring call with a 290 strike price
- Buy to open 1 May 17 310 call
- Sell to open 2 May 17 240 puts
- Buy to open 2 May 17 220 puts
Total credit comes out to $11.70, based on recent trading. Therefore, the break-even price for the trade in CYBR stock sits near two levels. One, you've got 301.70 on the high side and 229.30 on the low side.
The price resistance region sits near 290. Also, it sits at the top of a linear regression channel on the weekly and daily candlesticks. The support region sits near 240. These two levels give us the option strikes for our position.
The strategy gives us two simple choices to exit the trade. One, sell the spread once it carries an acceptable profit, or 50% for me. Two, sell the short iron condor spread once it hits your loss threshold. I am slanting the bullish motion in CYBR stock as I did in IBM. Why? It is holding strength through daily and weekly price patterns.
By selling twice as many put spreads as call spreads, I am anticipating prices hold steady or rise rather than fade. And I'm willing to give the chart another 7%-10% move up or down without eating into the profit.
The goal of taking the short iron condor is to allow time decay to work for us. We wish CyberArk shares to sit still while the drop in theta value increases our gains over time.
Trade Management
With earnings behind us, we now expect the chart to range before breaking out. Let's consider these scenarios too:
- CYBR stock grinds higher or lower into our risk thresholds and we exit the trade.
- CyberArk stays in a range and we gain slowly over time.
- CYBR stock grinds higher or lower into our profit thresholds and we exit the trade.
Anne-Marie Baiynd is a 20-year veteran trader of stocks, options and futures and is the author of "The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology." She holds no positions in the investments she writes about for IBD. You can find her on Twitter and Stocktwits at @AnneMarieTrades
