United Airlines Iron Condor Could Profit 25% In 4 Weeks

United Airlines (UAL) has had a mammoth run since September last year, but could be due for a pause here. That could mean it’s a good time for an iron condor trade.

United Airlines is also showing elevated implied volatility with an IV Percentile of 92%.

An iron condor 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 an iron condor is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

UAL IRON CONDOR

Traders that think UAL stock might stay in the current range over the next five weeks could look at an iron condor.

As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.

The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.

First, we take the bull put spread. Using the March 21 expiry, we could sell the $85 put and buy the $80 put. That spread could be sold yesterday for around $0.65.

Then the bear call spread, which could be placed by selling the $115 call and buying the $120 call. This spread could also be sold yesterday for around $0.40.

In total, the iron condor will generate around $1.05 per contract or $105 of premium.

The profit zone ranges between $83.95 and $116.05. This can be calculated by taking the short strikes and adding or subtracting the premium received.

As both spreads are $5 wide, the maximum risk in the trade is 5 – 1.05 x 100 = $395.

Therefore, if we take the premium ($105) divided by the maximum risk ($395), this iron condor trade has the potential to return 25.6%.

If price action stabilizes, then iron condors will work well. However, if UAL stock makes a bigger than expected move, the trade will suffer losses.

COMPANY DETAILS

The Barchart Technical Opinion rating is a 56% Buy with a Weakest short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

UAL rates as a Strong Buy according to 20 analysts with 1 Moderate Buy rating.

United Airlines transports people and cargo not only throughout North America but also destinations in Asia, Europe, the Middle East and Latin America.

In the fourth quarter of 2024, United Airlines experienced a 64% increase in institutional investment, with Handelsbanken Fonder AB acquiring an additional 20,633 shares, bringing their total holdings to 52,866 shares. 

Conversely, Principal Financial Group Inc. reduced its stake by 1.0%, selling 3,917 shares and retaining 374,297 shares. 

Conclusion And Risk Management

One way to set a stop loss for an iron condor is based on the premium received. In this case, we received $105, so we could set a stop loss equal to the premium received, or a loss of around $105.

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 $90 on the downside and $110 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.