Strategy: Sell n OTM Calls, ≤ 56 DTE
Sell n OTM Puts, Same Expiry
Example:
Price Chart: Moving sideways (neutral)
Current IV%: ≥ 40% (to increase premium values)
IV Rank: ≥ 50
Trade: Sell n OTM put options; sell n OTM call options. (All options expire ≤ 56 DTE.)
Typical Strike Deltas:
Short OTM Calls ≤ −0.25
Short OTM Puts ≤ 0.25
Goals: Premium collection from short options placed at far OTM strikes that are unlikely to become ITM prior to expiration.
Manage: Monitor this trade to ensure that the strikes of the short put and short call options remain safely OTM. If one of the options is threatened, either close it or buy a long option 1 or 2 strikes farther OTM for insurance. If the options remain OTM, consider letting them expire worthless to achieve this strategy’s maximum profit. This trade includes uncovered short calls requiring the trader to have the highest option trading level.
Profit: Close when the remaining options achieve a profit of 30 percent or let these short options expire worthless for 100 percent profit.
Loss: Close one of the short options if it approaches the ATM strike. This can result in a net premium loss that exceeds 30 percent.