United Airlines stock is showing high implied volatility with a reading of 54.65% compared with a 12-month low of 31.56% and a 12-month high of 61.43%. That gives shares an implied volatility percentile of 92% and an implied volatility rank of 77%.
High volatility can mean it's a great to time trade iron condors, because we can place our short strikes much further away from the market than we normally could.
So how to set up an iron condor on United Airlines stock? An iron condor can be set up via a combination of a bull put spread and a bear call spread.
First, take the bull put spread. Using the March 21 expiry, investors could sell the 82.50 put and buy the 77.50 put. That spread could be sold for around 70 cents.
Then the bear call spread could be placed by selling the 110 call and buying the 115 call. This spread could be sold for around 55 cents.
Wide Profit Zone For Shares
In total the iron condor will generate around $125 in premiums. The profit zone ranges between 81.25 and 111.25. This can calculated by taking the short strikes and adding or subtracting the premium received.
This is quite a wide range for a stock like United Airlines. As both spreads are 5 wide, the maximum risk in the trade is 5 minus 1.25, then multiply that by 100. The result is $375.
Therefore, if we take the premium, $125, divided by the maximum risk of $375, this iron condor trade has the potential to return 33.3%. If price action stabilizes then iron condors will work well. However, if United Airlines stock makes a big move the trade will suffer losses.
One way to set a stop loss for an iron condor is based on the premium received. In this case, we received $125, so could set a stop equal to the premium of $125. Note that United Airlines reported earnings in mid-January, so this trade should no have earnings risk.
How United Airlines Stock Ranks
According to Investor's Business Daily's IBD Stock Checkup, United Airlines ranks fifth in its group and has a Composite Rating of 91. Further, its Earnings Per Share Rating is 47 and its Relative Strength Rating stands at 97.
The last iron condor we looked at for was Taiwan Semiconductor, which expired worthless last week for a full profit. Nike moved higher yesterday, so if you were considering this bear call spread, you might want to move the strikes up to 85-90.
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.
Option Pricing Tolerance: $1.00 – $1.40
Strike Guidelines: Move all strikes up or down $2.50 if United Airlines opens $2.50 higher or lower.
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
