Strategy: Sell n ATM Calls, ≤ 56 DTE
Sell n ATM Puts, Same Expiry
Example:
Price Chart: Strong directional price moves
Current IV%: ≥ 40% (to increase premium values)
IV Rank: ≈ 50
Trade: Sell n ATM call options; sell n ATM put options. (All options expire ≤ 56 DTE; 30 DTE is typical.)
Strike Deltas: (both ATM)
Short ATM Call ≈ −0.50
Short ATM Put ≈ 0.50
Goals: A strong, sustained directional price move signals the trader to buy to close the losing short options that begin to move ITM and retain the short options that begin to move OTM. As evident in the above-mentioned risk profile, holding both the put and call options causes this trade to begin losing premium value from a price move in either direction.
Manage: Watch for a strong directional price move. Buy to close the losing short option as it begins to move ITM and becomes more expensive to close. Retain the profitable short options as they move farther OTM for profit. Once a satisfactory profit is achieved, either buy the remaining short options or let them expire worthless. This trade includes uncovered short calls requiring the trader to have the highest option trading level.
Profit: Close when the remaining options achieves a profit of 30 percent or more.
Loss: Close if the price move reverses direction and begins to increase the value of the remaining short options.