Strategy: Iron Condor
Buffer to strike: 15% (call side) 17% (put side)
Max risk: 10% of account
Price at entry: 91.31
Put Spread: -75 +65
Call Spread: -105 +115
Min contracts: 1
Company description: VRTX is a pharmaceuticals and biotech company that specifically produces drugs to treat cystic fibrosis.
Implied volatility and probability: IV is %54.10 with probability of success at 72%. This stock is highly volatile which is why we are able to get high premiums on it with such a wide buffer area. Still we are maintaining the standard 72% success rate for iron condor trades.
Support and resistance: There a number of key support and resistance levels on this trade, the two key points will be at about the 97 level and the 80 level. The stock is traveling at in a bullish direction at the moment and if it keeps following the trend it should peak at about 101 by the expiry date:
Exit strategy: At time of writting this trade as a 72% probability of success, ideally the trade will expire worthless within the 105 and 75 strike prices. I’ll close this trade off if the strike prices are breached by more than 50% of max loss which would be at 110 or 70 levels. I expect this trade to start out by falling to about the 90 level and then continue moving up in it’s trend until it reaches the 97 level before it hits more resistance. Ultimately I’d expect it to reach no higher than the 100 level before expiry.
News and thoughts: VRTX is a pharmacuticals company that deals only in drugs that treat a single disease (cystic fibrosis) analysts estimate this to have a lot of potential but at the same time the entire company depends on just these one type of drug which is probably why this stock is so volatile. VRTX has also recently bought out a competitor, I believe for now at least that VRTX will continue on this upward trend at least until the next month’s expiry.
5/4/2017: VRTX gaped up by 20% in one day busting right through the 105 short call position as investors enthusiastically recieved news about a new cysitic fibrosis drug that the company had developed. Random events like this can happen so I’ve closed the position at a pretty decent 50% loss of initial investment. We’ll get that one back next month.