Strategy: Sell 2n or 3n OTM Puts, ≤ 56 DTE
Buy n ATM Puts, Expire ≥ 90 DTE
Price Chart: Downtrending off of resistance
Current IV%: ≤ 20%
IV Rank: ≤ 30
Trade: Buy n ATM put options; sell 2n or 3n OTM put options lower strike.
Typical Strike Deltas:
Long Puts ≈ −0.50 to −0.45
Short Puts ≈ ≤ 0.25
Goals: Keep the credit in premium received from selling the multiple short puts when this strategy is entered. A drop in the price of the underlying moves the long puts deeper ITM for an increase in premium value and makes this trade even more profitable.
Manage: If the long put moves deeper ITM from a drop in the price of the underlying security, or even if a price rally occurs, the premium collected when this trade is entered is retained. If the price of the underlying drops to the strike of the multiple short puts, close the trade for the profit near the peak of the risk profile’s plotline for the maximum achievable profit. If the price drop exceeds the strike of the short put options, close the trade before it begins to lose premium.
Profit: Close when this trade returns a profit that is greater than or equal to 30 percent.
Loss: This trade is subject to a loss if retained during a strong drop in the price of the underlying. Close this trade when the underlying is close to the strike of the OTM short puts to avoid a loss.