Strategy: Sell n ATM Calls, ≤ 56 DTE
Buy n ATM Calls, Expire ≥ 90 DTE;
Sell n ATM Puts, Expire ≤ 56 DTE
Buy n ATM Puts, Expire ≥ 90 DTE
Price Chart: Uptrending (Example shows short options one strike below long options.)
Current IV%: ≥ 60%
IV Rank: ≥ 70
Trade: Sell n ATM put and call options that expire ≤ 56 DTE (20 to 30 DTE is typical); buy n ATM put and call options that expire ≥ 90 DTE.
Typical Strike Deltas:
ATM Long Call ≈ 0.50 Delta
ATM Long Put ≈ −0.50 Delta
ATM Short Put ≈ 0.50 Delta
Goals: This trade relies on Theta to reduce the premium values of the shorter-term short call and short put options faster than the loss in premium value of the longer-term long call and long put options. A strong move in either direction will benefit one of the long and short options, while the two losing options are closed to limit their loss in premium values.
Manage: When a price rally or drop occurs, close the losing long and short options. Keep the profitable long option as it moves deeper ITM and the profitable short option as it moves farther OTM.
Profit: Close when total original premium achieves 30 to 60 percent.
Loss: Close if an unexpected price reversal occurs and the remaining long and short option premium is lesser than or equal to 8 percent.