The proprietary technical analysis trade system has generated a buy signal on Apache Corp. (APA). However there is added risk to this trade because of the news factor that has skyrocketed volatility in recent weeks. The implied volatility has spiked to 42% for front month options (May) versus 35% for June.
If you feel that the draw down in oil and gas stocks is over or ready to consolidate, a nice setup would be to sell the juiced up premiums that sector stocks have priced in. Specifically, the Apache May put options have an implied volatility of almost 70% versus June put options of 45%.
Sell 1 APA May 90/95/105/110 Iron Condor for a credit of $1.57 or better.
The iron condor has multiple advantages in this situation:
1) it profits from consolidation in the stock price with room for movement both ways.
2) If front-month volatility decreases the position profits.
3) The position is Theta positive with 15 days until expiration.
4) The position is relatively Delta neutral with low Gamma.
5) Limited risk if stock makes a drastic move before expiration.
6) Technical support levels and 200-day EMA below current price.
The maximum profit is the net credit received and the maximum risk is the strike spacing ($5) minus the credit received, or $3.43 in the setup above.
