Strategy: Sell n OTM Puts, Expire ≤ 56 DTE
Example:
Price Chart: Uptrending or moving sideways
Current IV%: ≥ 60%
IV Rank: ≥ 70
Trade: Sell one or more OTM put options.
Typical Strike Delta: ≤ 0.25 (75% Probability OTM)
Goals: Sell a far OTM put for premium income on a neutral to uptrending security. Let Theta reduce the premium until the short puts can be purchased for a fraction of the amount of premium originally received. This strategy is also referred to as a cash-covered put.
Manage: If the short put remains safely OTM, either close it for profit when time value reduces its premium or let it expire worthless. If the price of the underlying begins to rally, close the trade to prevent the short put 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.