iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is an exchange traded fund seeking to track the performance of an index of high yield U.S. corporate bonds. Shares of HYG are currently trading around $93.00 in a 52 week range of $88.27-$96.30. HYG has had a relatively flat year with shares losing only 0.35% year to date. Options action in HYG today would suggest that traders believe this sideways action will continue. Early in today’s session a trader sold 10,000 of the Dec 92-93 Strangles for $0.88. This means they are expecting the stock to trade in a range between $92.00 and $93.00 on December expiration. This block also represents volume 3.2 times the average daily option volume in HYG. We believe that this order is big enough to signal as a set up for an iron condor in HYG. By using an iron condor we are not exposing ourselves to the extremely high levels of risk short strangles come with. Here we are still able to set up a great risk to reward ratio with a slight downward directional bias and no risk of unlimited losses.
Trade: The HYG Dec 91-92-93-94 Iron Condor for $0.55 Net Credit
Risk: $45 per 1 lot
Reward: $55 per 1 lot
Breakeven: $91.45 and $93.55
