Strategy: Buy n Calls,
Sell n Calls @ Higher Strike
(Same Expiry ≤ 56 DTE)
Price Chart: Uptrending
Current IV%: ≤ 20%
IV Rank: ≤ 30
Trade: Buy n call options; sell n call options higher strike.
Typical Strike Deltas:
Long Call ≈ 0.50 to 0.45*
Short Call ≤ −0.25 based upon premium
Goals: A strong rally in the price of the underlying required to move the long call deeper ITM to increase premium value; collect premium from the short call to partially offset the premium paid when this trade is entered.
Manage: If the stock rallies and the long call moves deeper ITM, be prepared to close both the long and short calls for profit. If the price of the underlying drops, sell both the long and short calls. If the highest option trading level is held, the short call may be retained until it expires worthless.
Profit: Close when this trade returns a profit that is greater than or equal to 30 percent.
Loss: Close when this trade approaches an 8 percent loss.
*Always consider the calendar or diagonal bull call spreads (both described later in this strategy guide) by using a later expiration date for the long calls.