Dell Technologies (DELL) is currently showing above average volatility with an IV Percentile of 74% and an IV Rank of 57.38%.

DELL rates as a Strong Buy according to 15 analysts with 2 Moderate Buy and 3 Hold ratings. The stock is down 11.5% in the last three months but is up 10% in the last month.

Dell Technologies is a prominent provider of information technology solutions, encompassing segments like Client Solutions, Enterprise Solutions Group, and Dell Software Group.

Valuation metrics show Dell trading at 18 times trailing earnings and 11 times forward earnings, positioning it as a relatively inexpensive stock compared to the broader market.

Today, we’re going to look at a short strangle trade due to the high IV percentile.

A short strangle aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for a short strangle is limited to the premium received while the maximum potential loss is unlimited. For this reason, the strategy is not suitable for beginners.

DELL SHORT STRANGLE

Traders that think DELL stock might remain stable over the next few weeks could look at a short strangle.

As a reminder, a short strangle is a combination of an out-of-the-money short put and an out-of-the-money short call.

The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.

For DELL stock, a February 28 put with a strike price of $105 could be sold for around $1.25.

Then the short call, placed at the $140 strike, could be sold for around $1.20.

In total, the short strangle will generate around $2.45 per contract or $245 of premium.

The profit zone ranges between $102.55 and $142.45. This can be calculated by taking the short strikes and adding or subtracting the premium received.

If price action stabilizes, then short strangles will work well. However, if DELL stock makes a bigger than expected move, the trade will suffer losses.

Note that DELL is due to report earnings on February 28 after the market close. The expected move for the February 28 expiration is currently $109.05 – $131.63

Conclusion And Risk Management

One way to set a stop loss for a short strangle is based on the premium received. In this case, we received $245, so we could set a stop loss equal to the premium received, or a loss of around $245.

Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around $110 on the downside and $135 on the upside.

As this trade encompasses earnings, there is a chance the stock could gap above or below those points.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.