Strategy: Buy n ATM Calls, Expire ≤ 56 DTE
Sell 2n or 3n OTM Calls, Same Expiration
Example:
Price Chart: Uptrending off support
Current IV%: ≤ 20%
IV Rank: ≤ 30
Trade: Buy n ATM call options; sell 2n or 3n OTM call options at least 1 standard deviation farther OTM.
Typical Strike Deltas:
Long Calls ≈ 0.50 to 0.45
Short Calls ≈ −0.25
Goals: Retain the credit in premium received from selling the multiple short calls as profit when this strategy is entered. A strong rally in the price of the underlying moves the long calls deeper ITM for an increase in premium and makes this trade even more profitable.
Manage: If the long call moves deeper ITM from a rally in the price of the underlying security, or even if a price drop occurs, the premium collected when this trade was entered is retained as profit. If the price of the underlying rallies to the strike of the multiple short calls, close the trade for the profit as the price approaches the peak of the risk profile’s plotline. If the price rally exceeds the strike of the short call options, close the trade before it begins to lose premium. Do not let the short calls expire ITM. This trade includes uncovered short calls requiring the trader to have the highest option trading level.
Profit: Close when this trade returns a profit that is greater than or equal to 30 percent.
Loss: Close this trade when the underlying is close to the strike of the OTM short calls.