Strategy: Buy n ITM Puts, ≤ 56 DTE
Sell n ATM Puts, Same Expiry
Sell n OTM Puts, Same Expiry
Price Chart: Uptrending
Current IV%: ≥ 40%
IV Rank: ≤ 30
Trade: Buy n ITM put options; sell n ATM put options; sell n OTM put options.
Typical Strike Deltas:
ITM Long Puts ≈ −0.55 to −0.65
ATM Short Puts ≈ 0.50
OTM Short Puts ≈ 0.40 to 0.35
Manage: This strategy includes a bear put and a farther OTM short put for additional premium collection to offset the cost of the ITM long put. If the price of the underlying rallies, this trade remains profitable. If it remains at its present value, the premium collected when the trade is entered is retained. If the price drops by a small amount, the premium value rises to its maximum value of approximately $2,700. The short puts should be closed if the price of the underlying drops below $139 per share. The premium value of the long puts would simultaneously increase. The long puts should be retained until Theta begins to decrease their premium value, at which time the long puts should be closed.
Profit: If the price of the underlying remains close to its current value or drops by a small amount, this strategy can achieve a profit between $300 and $2,700.
Loss: If the price of the underlying experiences a strong drop and the trade is unmanaged, this strategy can achieve an unlimited loss. This occurs if both strikes of the short options move ITM by several dollars, as shown by the steep negative slope of the risk profile’s plotline as the price drops below $139 on the X axis.