FXI – iShares FTSE/Xinhua China 25 Index Fund – The implementation of a large-volume iron condor on the FXI, an exchange-traded fund that corresponds to the performance of the FTSE/Xinhua China 25 Index – an index created to represent the performance of 25 of the largest and most liquid companies in the Chinese equity market, suggests one options strategist expects the price of the underlying fund to stagnate through August expiration. Shares of the FXI are currently down 0.90% on the day to stand at $40.80 just before 11:35 am ET. The investor essentially enacted a pair of credit spreads in order to reel in available premium, which he keeps in full if shares trade above $40.00 and below $43.00 through expiration day next month. To establish the iron condor the investor sold 15,600 calls at the August $43 strike for a premium of $0.30 each, and purchased the same number of calls at the higher August $45 strike for a premium of $0.06 apiece. On the put side, the trader shed 15,600 contracts at the August $40 strike for a premium of $0.57 each, and bought the same number of August $38 strike puts at a premium of $0.22 a-pop. The investor receives a net credit of $0.59 per contract on the transaction, which he keeps as long as shares remain range-bound between the $40.00 to $43.00 strike prices through August expiration day. The trader responsible for the iron condor faces substantial risk of loss should the price of the underlying fund move significantly in the next several weeks. Losses start to accumulate for the investor should shares rally above the upper breakeven price of $43.59, or if shares slip beneath the lower breakeven point at $39.41 by expiration. Maximum potential losses the investor could incur amount to $1.41 per contract should shares rally sharply to surpass $45.00, or if shares nosedive to trade below $38.00 by expiration in August.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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