Option Trading Idea: Energy Select Sector SPDR ETF (XLE) Iron Condor

As the stock market and crude oil look poised to trade in a range through the end of the year, this iron condor strategy on the Energy Select Sector SPDR ETF (XLE) offers the opportunity to earn a potential return on risk of almost 50%.

Iron Condor Trade Details:

The XLE is currently trading at $56.62.

Below are the elements (one bull put spread, one bear call spread) for this iron condor. Please note that a brokerage platform that provides for four-legged spread trading (such as OptionsHouse ) will allow the simultaneous execution of all four legs, typically paying one spread trading commission to do so. Additionally, if you so choose, you should then be able to set a limit order for the spread as a whole, thereby securing a better credit .

Iron Condor Part I: Bull Put Spread –

• Sell the January 51 put for $0.94 per contract
• Buy the January 50 put for $0.78 per contract
• Net credit of $0.16 per spread

Iron Condor Part II: Bear Call Spread –

• Sell the January 62 call for $0.64 per contract
• Buy the January 63 call for $0.48 per contract
• Net credit of $0.16 per spread

Overall credit for the spread: $0.32 (or $32)

Profit/Loss Details:

Maximum profit: $0.32 (the total premium collected) minus commissions.

Maximum risk: $0.68 (the difference between put or call strikes minus the premium collected). Return on risk is approximately 47% for this strategy.

Upper breakeven price: $62.32 (the strike of the sold call plus the total premium).

Lower breakeven price: $50.68 (the strike of the sold put minus the total premium).

Remember, trading Ideas are generated by the ONN Idea Generating Platform as a starting point for people to begin their own research. Trading ideas are not intended as trading or investment advice or recommendations that any particular security or strategy may be suitable for any specific person. You are solely responsible for your investment decisions, but we hope that some of these ideas will give you a starting point as you look for strategies to employ.

Keep an eye on the “Trading Idea” section of www.ONN.tv for more option trading ideas from nine different strategies, courtesy of the ONN Idea Generating Platform.