How to construct a winning options strategy on a software stock that had a big June

Published Tue, Jul 2 202410:33 AM EDT

Nishant Pant @TheMeanTrader @TheMeanTrader

Intuit (INTU) had a massive run-up in June, representing a 17% move in just 18 trading days. The charts indicate the TurboTax maker could be caught in a trading range from here and I've got an options strategy that wins if it remains stuck. Intuit shares presently trade at a forward P/E ratio of almost 39. This is a premium relative to the industry's average forward P/E of 28. If INTU keeps going up, it will soon have to deal with upside resistance at $676, which also happens to be an all time high. On the flip side, if this upward momentum starts stalling, the next area of support appears to be at $627. I've used Fibonacci retracements to project downside price targets for this scenario. An Iron Condor is a great trade structure to use when dealing with trading ranges like this one. To construct an Iron Condor, all I have to do is sell a call credit spread and a put credit spread at the same time. The strikes are determined by the trading ranges identified above. The trade Sold INTU 680-690 CALL/620-610 PUT Iron Condor Credit (also max profit): $437 Max loss: $563 Expiry: 26 th July 2024 To construct the PUT SPREAD that I will be selling, here is what I need to do: Fibonacci analysis tells me that $627 is near term support. This is an area where INTU is likely to bounce back. To add some buffer to this, I have selected to sell a $620 - $610 put spread which has a 78% chance of expiring worthless (i.e. in my favor). For the CALL SPREAD side of the equation, I need to do something similar. Upside resistance is at $676, so I have chosen to sell a $680-$690 call spread which has a 75% probability of success. As long as INTU stays between $680 and $620, this trade will return 76% return on investment. Those are pretty good returns for a trade that has large buffer to be a winner. Most trading platforms will allow you to put this trade as one unit by selecting "Sell Iron Condor" as the trade structure. -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.