Bank Profits With This Iron Condor Play: VIPS

I have said many times before that it is pretty foolish to pigeonhole yourself into declaring you are a debit spread buyer or a credit spread seller, or “I only buy premium”, or “I am a premium seller”.  That’s like saying “I am a winter coat wearer”.  There are times when wearing a winter coat is a very good idea, perhaps even a lifesaver.  But, talk to me in August about how great it is wearing your down-filled parka and I am going to think you may need some serious therapy.  Same thing is true with options.  You have to let the data lead the way.  Any retail trader can easily trade options from the debit side.  Your risk is defined and limited to whatever you pay for an option or a spread.  But how does a retail trader play options from the sell-side?  Because of the theoretical unlimited risk associated with selling options, most retail traders are priced out of the market.  Without having to take undue risk, you can play from the short side.  Let’s take a look at Vipshop (VIP).  From LiveVol:

“Vipshop Holdings (VIPS) operates as an online discount retailer for brands in China. The Company offers a range of apparel, fashion goods, cosmetics, home goods and lifestyle products from domestic and international brands. The Company’s product categories include womenswear, menswear, footwear, accessories, handbags, children, sportswear and sporting goods, cosmetics, home goods and other lifestyle products, luxury goods, and gifts and miscellaneous.”

VIPS has had a rough go of it on earnings as of late, but it has found support right here at the 50-day moving average and looking at some of its peers, this earnings cycle has not been too bad.  Implied volatility is on the high-end of its spectrum.  How can one take advantage of this elevated risk premium and the fact that the stock may have found a technical bottom?  One could sell an asymmetrical iron condor.  By asymmetrical, the distance out of the money from the put and call sides of the iron condor is not equidistant.  One could consider the following:

Buy (opening) the VIPS November 11.5 put

Sell (opening) the VIPS November 12.5 put

Sell (opening) the VIPS November 14.5 call

Buy (opening) the VIPS November 15.5 call

For a CREDIT of $0.60.

This is a credit iron condor with a small bullish bias.  We would be getting 1.5:1 reward to risk if we took this signal.