IOC January options Iron condor looks attractive

 InterOil Corporation (IOC) an energy company had an excellent run in the past 20 days gaining more 30% from Dec 19^th low of $45. Stock is currently trading at $58.48 at close of today’s market.

 IOC has crossed both the 50 day and 200 day moving averages in the last few days. 200 day moving average is at $54.23 and might provide support level in the short term. Stock is likely to face resistance around $60 based on trading patterns from July 1^st to September 20^th.

  Iron Condor: This is a combination of credit option spread and credit put spread. Following trade was selling for a credit of $4 towards today’s close.

Buy 1 January,2012 $50 put

Sell 1 January, 2012 $57.50 put

Sell 1 January, 2012 $60 call

Buy 1 January, 2012 $67.50 call

 

If the stock is trading between the inner strikes of $57.50 and $60 on options expiration date, this trade will make a profit of $4. If the stock crosses the outer strikes of $50 and $67.50 maximum loss will be $3.50.  Since 1 contract is 100 shares, max profit is $400 and max loss is $350. Break even for the trade is $64 on high side and $53.50 on low side.

 I do not expect to collect the entire $4, but if the stock trades between the support and resistance levels in the next 7 trading sessions, this trade can be closed for profit on or before January 20^th options expiration.

 The graph below illustrates profit and loss for this trade:

 Source: Yahoo finance.

  Disclosure: I own the above trade.