Iron Condor Setup for a Range Bound BRCM

Broadcom Corp BRCM has been stuck in a pretty wide range since July. This stock has had some big days but somehow always ended up back in the range. Now this would drive stock traders crazy. The back and forth action every couple of days make it hard to turn a consistent profit.

All you do is churn and spend commissions.

Option traders on the other hand have a perfect play for this. We can create an iron condor that profits if a stock trades within a range. Sounds like the perfect play to us.

With our range defined we can structure our iron condor right outside of it. That way we will generate profit as long as BRCM stays within its range.

This range isn’t going to last forever so we are going to focus on the December 18th expiration. This will allow us to use the aggressive time decay to our advantage. Our risk here is if BRCM makes a sharp move in either direction. Since we are so close to expiration, gamma becomes our enemy.

The trade we want is the December 24-26-29-31 iron condor for a .31 credit. This credit will be generated on a margin of 1.69 which gives us a 18% return in 11 days. Now we probably won’t hold this stock that long and see if we can’t capture half of that credit by next week.

Here is how that trade will look on a chart of BRCM.

The green lines mark the breakeven points of the iron condor. As you can see this trade profits as long as BRCM stays within the range. With BRCM getting an upgrade recently we can see that it is still not going anywhere.