Goldman Sachs is holding nicely above the 21-day exponential moving average and the 50-day line. The Wall Street bank is also showing a high IV (implied volatility) percentile. So today we are looking at an unbalanced iron condor trade in GS stock. This strategy holds a slightly bullish bias.
How do we achieve this? Simply by trading more put spreads in GS stock than call spreads.
As a reminder, an iron condor combines a bull put spread and a bear call spread.
GS Stock: Setting Up The Trade
First, we take the bull put spreads. Using the April 19 expiry, we could sell two put spreads in GS stock while using 355 and 350 as the strike prices. That spread could be sold for around $0.55 per set of contracts, based on recent trading. Selling two contracts would generate $110.
Then we create the bear call spread. Place it by selling the 425 call and buying the 430 call. This spread could be sold for around $0.60.
Trading two put spreads for every one call spread gives the trade a slight bullish bias. But it also generates more risk on the downside.
In total, the iron condor will generate around $1.70 or $170 of premium. The profit zone ranges between 353.30 and 426.70 in GS stock. Calculate it by taking the short strikes and adding or subtracting the premium received. The maximum risk for this trade stands at $830 on the put side and $330 on the call side.
Risk Vs. Reward
If we take the premium ($170) divided by the maximum risk ($830), this iron condor trade has the potential to return 20.5%.
A stop loss in this case might be calculated based on 25% of capital at risk, so a loss of around $165.
According to IBD Stock Checkup, GS stock ranks No. 4 in its investment banker industry group. The megacap financial firm has a Composite Rating of 84, an EPS Rating of 72 and a Relative Strength Rating of 74.
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, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
