Airbnb (ABNB) Stock Offers a Compelling Short Iron Condor Trade

The stock of homestays and experiences marketplace provider Airbnb (ABNB) is stuck in limbo. There’s really no other way to describe it. Sure, ABNB stock goes through bullish and bearish cycles. However, since the start of the year, the share price has gained just over 2%. Ordinarily, that would keep investors on the sidelines. However, this neutral framework presents a compelling short iron condor trade.

No matter what your long-term perspective is on ABNB stock, it’s difficult to imagine that in the near term, shares will move strongly in either direction. While the underlying company delivered a strong financial print for the third quarter, the disclosure is old news by now. Other potential catalysts, such as the U.S. election, have also come and gone.

Given the lack of excitement, combined with the fact that Airbnb won’t post its next earnings report until February 2025, I don’t expect ABNB stock to move much for the time being. Therefore, I view shares as a Hold. However, savvy traders still have a chance to make money despite a seeming lack of directional movement in the share price.

ABNB Stock is Still Enticing

Typically, retail traders look for distinct signals and indicators to better decipher where an asset might be headed. Market participants engage in debit-based strategies such as paying premiums for call options in the case of bullish investors or paying premiums for put options in the case of bearish investors.

On the other hand, the short iron condor addresses the question of what happens if you’re neutral on an asset, where you anticipate that it will stay rangebound over a given period? Structurally speaking, the short iron condor is a combination of a bear call spread and a bull put spread. These strategies form the upper and lower profitability boundaries of the condor trade.

Put another way, condors have four strike prices. Maximum profitability is achieved when the target asset stays within the boundaries of the inner strike prices. Maximum loss is capped at the outer strike prices. Because the trade is “short,” or credit-based, participants start at a cash inflow position. Therefore, short iron condor traders anticipate that the target asset’s volatility or movement declines over time.

The Option Play

Depending on the specific options chain (or expiration date) that you’re targeting, you may be inundated with several possible short iron condors to choose from. Because bid-ask prices constantly fluctuate, it’s impossible to give precise ideas. Therefore, I’m going to focus on teaching how to find compelling condors rather than simply providing them.

First, it’s important to decipher what the market anticipates might be the high-low range of the optionable security in question. To find out, you should conduct a stochastic analysis by multiplying these three metrics: share price, target option chain’s implied volatility (IV), and the time decay adjustment (or the square root of the days to expiration divided by 365 days).

Second, you take the above product and add and subtract it to the asset’s share price. For example, ABNB’s options chain expiring December 27 (34 days to expiration from November 24) features IV of 28.38%. Multiplying these two figures with the share price of $137.34 gets us $11.90. Therefore, ABNB is projected to rise to $149.24 or fall to $125.44.

Finding the Right Condor for Airbnb

Having calculated the anticipated high-low range, it’s time to find a baseline condor. This trade represents the strike-price combination that best fits the expected volatility of the target asset. For the December 27 options chain, the 120P | 130P || 150C | 160C condor arguably offers a balanced and viable trade. Should ABNB stock land between $130 and $150 by expiration, the trader can receive the maximum yield (which was 22.27% at time of writing). The chart below shows the current options on ABNB stock.

Further, the outer strike price features a gap of $10 to their nearest inner strike prices ($120 versus $130 and $150 versus $160). This width happens to expand the zone of profitability, such that the upper and lower breakeven thresholds clock in at $151.82 and $128.18, respectively. Of course, expanding the condor comes at the cost of more expensive premiums, thus putting more cash at risk while reducing the yield.

For truly adventurous traders, you may narrow your condors. While this inherently narrows the range of profitability, the action typically results in lower cash at risk, thus boosting the yield. For instance, the 120P | 125P || 140C | 145C condor at time of writing carried a yield of 44.84%. Because it’s less likely that ABNB stock will land between $125 and $140 (as opposed to $130 and $150), this is a far riskier trade.

Wall Street’s Take on ABNB Stock

Turning to Wall Street, ABNB stock has a Hold consensus rating based on seven Buys, 21 Holds, and six Sell ratings. The average ABNB price target is $138.68, implying 0.98% upside potential.

Read more analyst ratings on ABNB stock

Conclusion: ABNB Stock Going Sideways Isn’t a Terrible Outcome

Ordinarily, retail investors are looking for a directional wager. However, with Airbnb, the key fundamental drivers have already shown their cards. Moving forward, at least in the near term, not much movement is anticipated. However, such a pensive framework may make the short iron condor an enticing proposition. A credit-based approach, this particular condor represents a bet that the target security will see a decrease in volatility. So long as the stock lands between the inner strike prices, the trader can collect the maximum reward. Further, a wider or narrower condor can be selected, depending upon one’s risk tolerance.

Disclosure.