Spotify Technology has shown impressive relative strength this year and recently cleared a 359.38 buy point. Today, we are looking at an unbalanced iron condor for Spotify stock. The iron condor benefits with the passage of time. Buying more put spreads than call spreads (making it unbalanced) gives the option trade a slightly bullish bias.
Spotify Stock Today: An Unbalanced Iron Condor
As a reminder, an iron condor is simply a combination of a bull put spread and a bear call spread. Both are credit spreads.
First, we take the bull put spreads on Spotify stock. Using the Nov. 15 expiry, if we sell two put spreads with the 320-310 strike prices, that spread sold for around 1.60 this morning. Selling two contracts at that price generates $320 in option premium.
Then if we created a bear call spread by selling the 430 call and buying the 440 call at the same expiration, it also sold for around 1.60 this morning.
Notice we traded two put spreads for every one call spread. That gives the trade a slight bullish bias, but also more risk on the downside.
In total, this unbalanced iron condor on Spotify stock generates around 4.80 per share or $480 of premium.
Profits And Losses
The profit zone ranges between 317.60 and 434.80. Calculate this by taking the short strikes and adding or subtracting the premium received. Since Spotify stock traded just above 370 this morning, it leaves a lot of room for the trade to remain profitable.
The maximum profit is the premium received. If Spotify stock stays between the short strikes at 320 and 430, the entire credit remains with the option trader.
The maximum risk is $1,520 on the put side and $520 on the call side. Again, the two puts for the unbalanced iron condor make the downside risk larger.
If we take the maximum profit ($480) divided by the maximum risk ($1,520), this iron condor trade on Spotify stock has the potential to return 32%.
Managing The Trade
A stop loss in this case might be calculated based on 25% of capital at risk, so a loss of around $380.
Spotify is based in Luxembourg with a dedicated customer base for its music and podcast platform.
According to the IBD Stock Checkup, SPOT stock is ranked number 2 in its group and has a Composite Rating of 91, an EPS Rating of 81 and a Relative Strength Rating of 96. Spotify has earnings on Nov. 12, so this trade holds earnings risk if held to expiration.
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
