Strategy: Buy n ATM Calls, ≥ 90 DTE
Buy n ATM Puts, Same Expiry
Price Chart: A series of strong directional price moves
Current IV%: ≤ 25% (to reduce premium values)
IV Rank: ≈ 10 to 20
Trade: Buy n ATM call options; buy n ATM put options. (All options expire ≥ 90 DTE.)
Strike Deltas: (both strikes ATM)
Long ATM Call ≈ 0.50
Long ATM Put ≈ −0.50
Goals: A strong directional price move benefits one of the ATM long options as it moves deeper ITM. The opposite long option is sold as soon as the trader is confident in a sustained directional price move.
Manage: Watch for a strong directional price move. Respond by selling the losing long options for as much premium as possible and retaining the profitable long options as they move deeper ITM. Once a satisfactory profit is achieved, sell the remaining long options. If ample time remains, consider using the long options to cover a bull call or a bear put to collect additional premium.
Profit: Close when the remaining option achieves a profit of 30 percent or more.
Loss: Close if the directional move changes and begins to reduce the value of the remaining options.