Strategy: Buy n OTM Calls, ≤ 56 DTE
Sell n OTM Calls, Higher Strike, Same Expiry
Buy n OTM Puts, Same Expiry
Sell n OTM Puts, Lower Strike, Same Expiry
Example:
Price Chart: Neutral; may be experiencing small upward trend.
Current IV%: ≈ 50%
IV Rank: ≈ 35 to 65
Trade: Buy n OTM call options; sell n OTM call options, higher strike; buy n OTM put options; sell n OTM put options, lower strike. (All options expire ≤ 56 DTE.)
Typical Strike Deltas:
Short Put ≤ 0.25
Long Put ≈ 2 strikes farther OTM than the short put
Long Call ≤ 0.20 (or less when premium is adequate)
Short Call ≈ 2 strikes farther OTM than the long call
Goals: This trade, which combines a bear put and a bear call, requires a strong directional price move, either up or down, to return a profit.
Manage: When a large directional price breakout occurs, the losing long and short options are closed. The remaining long option will move deeper ITM while the remaining short option will move farther OTM, both for profit.
Profit: Close when this strategy achieves a profit of 30 percent or more.
Loss: Close when an 8 percent loss in premium value occurs.