Strategy: Sell 2n or 3n OTM Calls, ≤ 56 DTE
Buy n ATM Calls, Expire ≥ 90 DTE
Example:
Price Chart: Uptrending off support
Current IV%: ≤ 20%
IV Rank: ≤ 30
Trade: Buy n ATM call options that expire ≥ DTE; sell 2n or 3n OTM call options higher strike that expire ≤ 56 DTE.
Typical Strike Deltas:
Long Calls ≈ 0.50 to 0.45
Short Calls ≤ −0.25
Goals: Use two or three short calls to reduce the premium required to enter this strategy or for premium collection. Close the trade for profit when the price rallies sufficiently to achieve profit or if it drops to approximately $80 and remains profitable.
Manage: If the long call moves deeper ITM from an expected rally in the price of the underlying security, close the trade for the profit as indicated in the risk profile. Alternatively, retain the long calls, which are now ITM, and either close or roll the short calls out and up for additional premium. If the price of the underlying drops, sell the long calls and keep the short calls that move farther OTM. Finally, buy to close the short calls for less premium than originally received 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 underlying is close to the strike of the short calls.
Loss: Close the long calls if the price of the underlying begins to trend downward.