Strategy: Sell n OTM Calls, ≤ 56 days till expiration (DTE)
Example:
Price Chart: Downtrending or moving sideways
Current IV%: ≥ 60%
IV Rank: ≥ 60
Trade: Sell one or more OTM call options.
Strike Delta: ≤ −0.25 (75% Probability OTM)
Goals: Sell far OTM calls for premium income on a neutral to down-trending security. Let Theta reduce the premium until the short calls can be closed for a fraction of the premium originally received.
This is an uncovered (or “naked”) short call. Only traders who are granted the highest option trading level by their brokerage can trade uncovered short calls. This applies to several strategies such as the covered call, bull call, diagonal bull call, etc.
Manage: If the short calls remain safely OTM, either close them for profit when time value reduces its premium or let them expire worthless. If the price of the underlying begins to rally, close the trade to prevent the short call from becoming ITM.
Profit: Close when this trade returns a profit of 30 percent or more.
Loss: Close when this trade approaches an 8 percent loss.