Bearish Outlook & High Volatility

The Setup

Sell 1 OTM Call; Buy 1 OTM Call at Higher Strike Price. for a net overall credit.

Timeline

Enter trade for 30 – 60 days

Volatility

Since I am a seller of this option I will only enter the trade when IV is above 50%. Decreasing IV will help this trade as inversely increasing IV will hurt the trade.

Time Decay/Theta

Time decay works in my favor. As a seller I expect all or part of the trade to expire worthless at expiration.

Risk Management

This trade should be less than 3 – 5% of my account.

Profit Target

If my position shows a profit near 50% of the max potential gain, I will close the position early to lock in profits.

Break-Even Point(s)

Short call strike plus net credit.

Categories: Strategies