Twisted Sister – The Option Strategy Desk Reference

Twisted Sister

Strategy: Sell n OTM Puts, 56 DTE

Buy n OTM Puts, Lower Strike, Same Expiry

Sell n OTM Calls, Same Expiry

Example:

Price Chart: Neutral; may be experiencing small downward trend.

Current IV%: 50%

IV Rank: 40 to 60

Trade: Sell n OTM call options; sell n OTM put options; buy n OTM put options, lower strike. (All options expire 56 DTE; 30 days DTE is typical.)

Typical Strike Deltas:

Short Put 0.25

Long Put 2 or more strikes farther OTM than short put

Short Call 0.20 (or even less when premium is adequate)

Goals: This trade retains the premium collected when opened as long as both the short call and vertical bull put spread remain OTM.

Manage: If the price of the underlying security remains within a narrow range, let the options expire worthless. If a price rally or drop occurs that threatens the short call or the vertical bull put spread, close the vulnerable position and retain the safe position until it either expires worthless or can be closed for a reasonable profit. This trade includes uncovered short calls requiring the trader to have the highest option trading level.

Profit: Close when this strategy achieves a profit of 30 percent or more.

Loss: Close when a loss in premium value becomes 8 percent or less.