Eli Lilly rallied to record highs in May thanks to a positive trial for its Crohn's disease treatment. So, today we are looking at an unbalanced iron condor, with a slightly bullish bias, in LLY stock.
You can achieve this type of iron condor by trading more put spreads than call spreads.
As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.
LLY Stock: The Setup
First, we take the bull put spreads. Using the July 19 expiry, we could sell two put spreads with the 760-750 strike prices. That spread could be sold for around $0.95 a share, based on recent trading. Selling two contracts would generate $190.
Then set up the bear call spread. Place it in LLY stock by selling the 910 call and buying the 920 call. This spread could also be sold for around $0.95. Trading two put spreads for every one call spread gives the trade a slight bullish bias, but also more risk on the downside.
In total, the iron condor will generate around $2.85 a share or $285 of premium per set of contracts in LLY stock.
Profit And Loss Zones
The profit zone ranges between 757.15 and 912.85. Calculate it by taking the short strikes and adding or subtracting the premium received.
The maximum risk winds up as $1,715 on the put side and $715 on the call side. If we take the premium ($285) divided by the maximum risk ($1,715), this iron condor trade has the potential to return 16.62%.
A stop loss in this case might be calculated based on 25% of capital at risk, so a loss of around $430.
Leadership Traits
According to IBD Stock Checkup, LLY stock is ranked number 1 in its group and has a Composite Rating of 98, an EPS Rating of 90 and a Relative Strength Rating of 93.
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 degree 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
