Dell Technologies Inc (DELL) is currently showing above average volatility with an IV Percentile of 91% and an IV Rank of 65%.
DELL rates as a Strong Buy according to 11 analysts with 2 Moderate Buy, 1 Hold and 1 Strong Sell rating.
Dell Technologies Inc. is a provider of information technology solutions.
The company's operating segment consists of Client Solutions, Enterprise Solutions Group and Dell Software Group.
Client Solutions segment includes sales to commercial and consumer customers of desktops, thin client products, notebooks as well as services and third-party software and peripherals of Client Solutions hardware.
ESG segment includes servers, networking and storage as well as services and third-party software and peripherals of ESG hardware.
DSG segment includes systems management, security software solutions and information management software offerings. Dell Technologies Inc. is headquartered in Round Rock, Texas.
Today, we’re going to look at a short strangle trade due to the high IV percentile.
A short strangle aims to profit from a drop in implied volatility, with the stock staying within an expected range.
When implied volatility is high, the wider the expected range becomes.
The maximum profit for a short strangle is limited to the premium received while the maximum potential loss is unlimited. For this reason, the strategy is not suitable for beginners.
DELL SHORT STRANGLE
Traders that think DELL stock might remain stable over the next few weeks could look at a short strangle.
As a reminder, a short strangle is a combination of an out-of-the-money short put and an out-of-the-money short call.
The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.
For DELL stock, a May 17 put with a strike price of $105 could be sold for around $0.95.
Then the short call, placed at the $140 strike, could be sold yesterday for around $1.20.
In total, the short strangle will generate around $2.15 per contract or $215 of premium.
The profit zone ranges between $102.85 and $142.15. This can be calculated by taking the short strikes and adding or subtracting the premium received.
If price action stabilizes, then short strangles will work well. However, if DELL stock makes a bigger than expected move, the trade will suffer losses.
Conclusion And Risk Management
One way to set a stop loss for a short strangle is based on the premium received. In this case, we received $215, so we could set a stop loss equal to the premium received, or a loss of around $215.
Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around $105 on the downside and $140 on the upside.
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.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
