Visa (V) – beta 0.98 Visa is a global card-payment financial services company used by millions of people worldwide. Probably not, and probably not during your iron condor trade. Is Walmart likely to come out with an innovation that causes its stock price to soar through the roof? Walmart (WMT) – beta 0.47 Discount retail chain with over 11,000 retail stores across the world. Or at least, we want its price to stay about the same during the iron condor trade. Is it likely for its business model and franchise structure to change, that causes its stock price valuation to a lot quickly? McDonald’s (MCD) – beta 0.63 With its first fast-food restaurant established in 1948 in San Bernardino, California, McDonald’s has been around for a long time. In any case, Amazon, with a beta of 1.14, is not that much more volatile than the market and is certainly acceptable.īecause of its high price, Amazon is ideal for investors who want to trade larger amounts without using many contracts. Sometimes higher beta stock will compensate the investor with high premiums. The term “60-month beta” refers to the beta value determined using the slope of the 60-month regression line between the stock’s price change and the index’s price change.Īmazon (AMZN) – beta 1.14 It doesn’t mean that we can not trade iron condor on stocks with a beta greater than 1.0. We are getting our “60-month beta” values from. Moving less is what we want for iron condors.Įli Lilly (LLY) – beta 0.25 The beta of this healthcare company seems relatively low. When the market moves in one direction or another, Nike statistically should move less than the market. Nike (NKE) – beta 0.87 Athletic footwear manufacture Nike (NKE) has a beta of less than 1, which indicates that it is less volatile than the market. The listĪlphabet (GOOGL) – beta 1.00 At the time of this writing, Alphabet Inc (formerly known as Google Inc) has a beta of exactly 1.00, which means that it is not any more volatile nor any less volatile than the overall market. However, for investors interested in establishing an iron condor position from the start, we prefer boring stocks with a beta of roughly 1.00 or less. Or, when their credit spreads go in the wrong direction, you can turn them into iron condors by adding an opposing spread. These high flyers are probably better for directional credit spreads. High-flying exciting stocks such as Telsa (TSLA) and Square (SQ) will not end up on our list because their beta is 1.95 and 2.43, respectively.Ī beta of 2 means that the stock is twice as volatile as the market. We also don’t want stocks that move around too much.Ī measure of this price movement volatility is beta. With this selection criteria, our list typically consists of large well-known companies that trade frequently. This selection does not need to be an exact and hard rule because the spread width will depend on the volatility of the market and the underlying at the time. So a spread around about one-tenth of one percent of the stock price is good. Higher price stocks will naturally have wider bid-ask spreads. We look at the monthly expiration cycle’s at-the-money strikes that are about 30 days out till expiration to judge the spreads.Ī good bid-ask spread for a $100-priced stock is around $0.10. We should have no problem getting into and out of these options (even far out at the five deltas ranges). When bid-ask spreads are tight, we say that the underlying is “liquid” with many buyers and sellers. Nevertheless, we still like tight bid-ask spreads to avoid losing too much every time we buy and sell. Yes, we can “negotiate” with them by requesting to be filled only at a specific price, such as close to the mid-point. Market makers would like to sell options to us at the ask price and buy it from us at the bid price so that they can pocket the difference. We want the difference between these two prices (known as the bid-ask spread) to be small. Bid-Ask Spreadīecause iron condor consists of four options, we may need to buy and sell multiple options as we make adjustments.Įach option has a bid price, and an ask price. These have more strike selections at those deltas. Therefore, we run iron condors on underlyings with a price above $100 per share. Low-price stocks that cost $20 per share do not have a good selection of strike prices available that far out of the money. We like to sell iron condors with the short strike between 10 to 15 delta. When used on stocks, there are certain characteristics of the underlying that we look for that make them more suitable for iron condors. But what are the best iron condor stocks? The iron condor is the most popular direction neutral options strategy.
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