Airbnb (ABNB) is sitting in a wide range into its next earnings cycle in February and it seems reasonable that the price action might stay in that range.
Here's the best trade to profit from that.
The trade we're looking at today is a short iron condor expiring in January, 2025. Currently, ABNB's relative resistance zone sits right around $150, and relative support is near $330. So we want a trade that makes us money as long as ABNB shares stay in that $150-$330 range.
With that in mind, our short iron condor, a combination of a short call spread and a short put spread, looks like this:
- Sell to open 1 ABNB 17 Jan 150 calls
- Buy to open 1 ABNB 17 Jan 155 calls
- Buy to open 1 ABNB 17 Jan 330 puts
- Sell to open 1 ABNB 17 Jan 320 puts
The short iron condor yields maximum profit when the share price of the underlying stock is equal to or between the strike prices of the "short" options (the ones you sell to open) on the day they expire.
In other words, as long as shares of Airbnb trade between $150 and $320, this trade will yield its maximum profit. The total potential profit what we collect on the credit side which is $1.26 at this writing and the total risk is difference between the distance of the strikes and the credit collected ($5 – $1.26= $3.74).
People often ask why they should use a short iron condor when the risk is so much higher than the reward, and that answer comes to probabilities. The probability the prices move into our short strikes is currently 15% while the probability that we hold outside this region is 85%.
The strategy result provides only two choices to exit the trade:
- To buy back the short iron condor when it is performing at your target parameters. I like the 50% profit range.
- To buy back the short iron condor when it hits either of the short strikes or hits the loss threshold that is desirable for you. Again, I like the 50% stop here.
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