Strategy: Buy 2n ATM Calls, Expire ≥ 90 DTE
Buy n ATM Puts, Same Expiry
Example:
Price Chart: A series of strong directional price moves on an upward trending security
Current IV%: ≤ 25% (to reduce premium values)
IV Rank: ≈ 10 to 25
Trade: Buy 2n ATM call options; buy n ATM put options. (All options expire ≥ 90 DTE.)
Strike Deltas: (both strikes ATM)
Long ATM Calls ≈ 0.50
Long ATM Puts ≈ −0.50
Goals: A strong directional price move benefits one of the ATM long options as it moves deeper ITM. The strap option strategy favors a rally rather than a drop because of the 2:1 call-to-put ratio. The opposite long option is sold as soon as the trader is confident of a sustained directional price move.
Manage: Watch for a strong directional price move. Respond by selling the losing long options to recover as much premium as possible. Retain the profitable long options as they move deeper ITM. Once a satisfactory profit is achieved, sell the remaining long options. If ample time remains, consider using the long options to cover a bull call or a bear put vertical to collect additional premium.
Profit: Close when the remaining option achieves a profit of 30 percent or more.
Loss: Close if the directional move changes and begins to reduce the value of the remaining options.