The Arena
As I write this tonight, my gut feeling is the US or even the global economy is finding more stable ground. Sure, inflation is still causing problems and earnings season is underway but investors seem resilient for now with equities staging a nice rally last week. Of course, I wouldn’t bet a bologna sandwich on that resiliency though. I’m just suggesting the feeling across the market is tenable for this very moment.
Looking forward, assuming the Federal Reserve doesn’t go bonanza’s and hike rates even more aggressively, I think we’re nearing an area where those on the sideline jump back in. However, we’ll just have to wait an see how things shake out.
For now, I’m going to maintain a neutral bias and look to enter an iron condor on Carmax Inc. The longer term forecast for Carmax isn’t great but here’s a little gristle from Marketbeat.com for those longer term holders.
The Coach
Carmax is in a clear downward trend since 2021 and I’m not sure I feel they’re ready to stage an epic comeback. However, I’m also not sure they’re prepared to fall lower either. Price has attempted to move below the 50 SMA on three occasions but rejected that level each time. Now, that’s not to say they won’t finally break through this month, it’s simply an observation that the bulls have decided to hold that level before so structuring an iron condor near there could make sense.
Fundamentally, Carmax Inc. looks about the same from my analysis. Neither good, nor particularly bad. Evidenced by the screenshot below of my analysis spreadsheet, both suggesting an acceptable buy price above the current market price and a don’t buy rating. Additionally, consumers may be electing to keep their old jalopy’s for few more years with inflation still squarely on our backs.
Is Carmax Inc. ready to climb higher or does the current trading range persist long enough to take advantage with an iron condor? Time will surely tell.
The Attack
Carmax’s current trading range has a low of $52 and a high of $80. However, from the chart I’m concluding that the range is a little tighter from $55 to $75. Using that information I’ve sought to construct an iron condor that could take advantage of a possible stagnation in price without the need to hold through an earnings swing.
To do so, I’m looking at the monthly cycle expiring April 21st. Implied volatility is currently near 80% percent and IV Rank is in the upper 25% of the yearly range. I would prefer the weekly cycle expiring April 14th with Implied volatility of 95% but the open interest is to low for my liking. Moreover, price is trading virtually inline with the point of control from the volume profile shown above. Should that level hold true for a week or so a nice profit may result.
Hold the phone though, Carmax did just make a 5% jump in price on Friday so a bullish outlook near term may be the more appropriate play. For that, a put credit spread would make more sense. Let me know what you think in the comments below.
Bullish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 21 APR 23 50 Put | 21 APR 23 55 Put | $70.00 | $430.00 | 84% |
Neutral assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 21 APR 23 80 Call | 21 APR 23 75 Call | $130.00 | $370.00 | 81% |
| 21 APR 23 55 Put | 21 APR 23 50 Put |
Bearish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 21 APR 23 80 Call | 21 APR 23 75 Call | $60.00 | $440.00 | 93% |
God Bless,
Jeff
