Sell an IQ strangle in May with this pop in volatility
Updated
Hello options sellers. I've decided to try and post some setups that I like, starting with a position IQ. 
IQ saw a substantial drop in price lately, and with that drop in price came an elevation in volatility and IV Rank. It seems to have found some support around here, so I'm looking to take advantage of this pop in volatility and higher option prices by selling a strangle with May expiration.
For this trade setup, sell the May 21st (Monthly) 30 delta PUT, which is currently at $15. Then also sell the $25 CALL. You can collect about $138 dollars for this strangle.
The position is leaning long, with Delta of 17, and a probability of profit at 65%. The probability of collecting 50% of that $138 is 82%. Holding this position will give you $2.69 dollars in theta decay every day to start. With that credit, our break evens on this positions are $1.38 higher and lower from our strikes, which means we can walk away with cash as long as the price of IQ stays between $13.62 and $16.38 by May.
What I am hoping for is for IQ to bounce off this low, and maybe start to go sideways or trend back upwards towards 20. IQ can move, so my naked call is a bit further out of the money, but I like the current break even prices. I won't keep this on till May 21st. I'll wait for the stock to leak higher, and with that the volatility will come out of these option prices, then you throw on the Theta collected after a week or so then I should be able to buy back this strangle for $69, walking away with $69 in profits per 1 lot.
If IQ fails to find more buyers and starts to fall and test my $15 PUT then I'll drop the CALL down from $25 to $20 to collect some more premium. If I had to guess, most of the profits is going to come from a crush in volatility. I would have been better off putting this position on earlier in the week, but the current IV Rank of 31 will come back to the mean around 19 if this stock drifts a little higher. Let's see how this plays out.
IQ saw a substantial drop in price lately, and with that drop in price came an elevation in volatility and IV Rank. It seems to have found some support around here, so I'm looking to take advantage of this pop in volatility and higher option prices by selling a strangle with May expiration. For this trade setup, sell the May 21st (Monthly) 30 delta PUT, which is currently at $15. Then also sell the $25 CALL. You can collect about $138 dollars for this strangle.
The position is leaning long, with Delta of 17, and a probability of profit at 65%. The probability of collecting 50% of that $138 is 82%. Holding this position will give you $2.69 dollars in theta decay every day to start. With that credit, our break evens on this positions are $1.38 higher and lower from our strikes, which means we can walk away with cash as long as the price of IQ stays between $13.62 and $16.38 by May.
What I am hoping for is for IQ to bounce off this low, and maybe start to go sideways or trend back upwards towards 20. IQ can move, so my naked call is a bit further out of the money, but I like the current break even prices. I won't keep this on till May 21st. I'll wait for the stock to leak higher, and with that the volatility will come out of these option prices, then you throw on the Theta collected after a week or so then I should be able to buy back this strangle for $69, walking away with $69 in profits per 1 lot.
If IQ fails to find more buyers and starts to fall and test my $15 PUT then I'll drop the CALL down from $25 to $20 to collect some more premium. If I had to guess, most of the profits is going to come from a crush in volatility. I would have been better off putting this position on earlier in the week, but the current IV Rank of 31 will come back to the mean around 19 if this stock drifts a little higher. Let's see how this plays out.
Note
I'm a little late to this defensive move, but dropping the naked CALL from $25 down to $20, collecting 20 cents for that move. This moves my breakevens to 13.42 to 21.84.
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