Strategy: Sell n ATM Calls, ≤ 56 DTE
Buy n ATM Calls, ≥ 90 DTE
Price Chart: Neutral to slight upward price trend
Current IV%: ≈ 50%
IV Rank: ≈ 40 to 60
Trade: Buy n ATM call options, ≥ 90 DTE; sell n ATM call options, ≤ 56 DTE.
Typical Strike Deltas:
Long Call ≈ 0.48 to 0.52
Short Call ≈ −0.48 to −0.52
Goals: This trade relies on a price rally in the underlying security which moves the long call deeper ITM for an increase in premium. The premium received from the short call offsets a portion of the premium paid for the long call.
Manage: If a price rally occurs according to the trader’s bullish bias, the short call is closed and the long call moves deeper ITM. When the long call’s premium is sufficiently high, the long call is sold for profit. If retained, farther OTM short calls can be sold for additional premium in the same way the diagonal bull call strategy is managed. If converted to a diagonal bull call, roll the short call out and up to collect additional premium.
Profit: Close when total premium is greater than or equal to 30 percent.
Loss: Close when total premium is lesser than or equal to 8 percent (in case of a price drop).