Updated: Aug 23
Today I want to share an advanced option strategy I performed recently on Chevron Corporation (CVX). On this trade, I managed to achieve a remarkable 100% return in 35 days.
Stock Chart Analysis and Support Level
On Thursday the 1st of June 2023 I decided to enter into this trade after analyzing the stock chart of Chevron Corporation. I could spot a well-defined support level at $150 with the stock trading potentially in a range. Initially, I went on to open a slightly bullish option strategy to get advantage of this support level.
I created a credit vertical strategy called Bull Put Spread, which involves using put options only. This was made of 4 contracts of the $145 Put Option with expiration July 21st, 2023 - which I purchased – and 4 contracts of the $150 Put Option with the very same expiration - which I sold. This creates a position with a limited maximum risk of $1332 which is known from the outset - you can’t lose more than your maximum investment - and a maximum profit potential of $668. That’s a potential 50% risk/reward ratio in 45 days. These 45 days are the remaining life of the options in the strategy. You can have a brief visual representation of this in the video below.
Enhance Your Position by Making an Adjustment
Now that the trade is placed, I have to monitor the price action of the underlying daily just for a few minutes. The Bull Put Spread strategy was entered when the stock was trading around $152. In the following days, it starts rising and on Wednesday the 7th of June, with the stock trading around $159 and the position in profitable territory I decide to make an adjustment which increases substantially the potential profit of the strategy, while reducing the risk exposure and the overall money invested.
I decided to purchase 4 contracts of the $165 Call Option with expiration July 21st, 2023, and sell 4 contracts of the $160 Call Option with the same expiration. This is where this trade gets really interesting. By putting these call options together on the same stock, I managed to create an extremely advanced trade known as a dynamic Iron Condor option strategy. From the video you can appreciate the peculiar risk profile of this modified trade with a wide profit area between the $146-$164 price range.
Now that I am trading an Iron Condor, my goal is for the underlying security to go nowhere and trade in a range for the remaining life of the options. These have 44 days left prior expiration and, as long as the stock is trading between the two breakeven points, I can make a daily profit simply with the passage of time. In fact, the Iron Condor has a downside breakeven point at $145.96 and an upside breakeven point at $164.04.
At this stage, all I need to do is to monitor the price action of the underlying daily and make sure the price is within the large profit area by expiration. In the following days, Chevron Corporation (CVX) moves slightly between $150 and $160.50. This is well within the range of prices protected by the breakeven points.
Close your Iron Condor and Take the Profits
On Thursday the 6th of July, when there are still 15 days left on the strategy, I decide to avoid any further risk and take the profits. The position is closed with a profit of $1100 which is over 100% on the initial Bull Put Spread trade and over 400% if I consider the time spent in the Iron Condor strategy alone.
Let me warn you that this was not an ordinary trade. Normally, you can’t expect these kinds of returns on Iron Condors. Trade was perfect in all aspects as the underlying security traded in a range and my timing in entering both sides of the Iron Condor provided a large profit area in the middle to get advantage of the effect of time decay.
I’ll see you on my next release of the Options Trading Diary.