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The stock has been in a trading range between 200 and 218 for nearly 3 months. It’s possible that BIDU doesn’t move much for a while, but I think the odds favor volatility expansion here.
Here’s the trade:
Buy to open BIDU Apr 210 straddle @8.40
Sell to open BIDU Apr 200/220 strangle @1.87
This is a covered straddle, also known as an iron butterfly buy.
Simply put, if BIDU ends up below 203 or above 216 going into April opex, this trade will be profitable.
If we don’t see any movement headed into options expiration week, then exit for a loss.
Decent breakout in BIDU and some small profits are in the trade right now… but I’m really concerned about reversion here. All it takes is a bit of a pullback and the risks become much greater in the trade.
Going to close this out and move on.
Buy to close BIDU Apr 200/220 strangle @3.88
Sell to close BIDU Apr 210 straddle @11.03
Return of about 60 bucks per spread which is a RoR of 9.4%. Not the best but we have to worry about time decay risk here.
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