Bearish Outlook & High Volatility

The Setup

Sell 1 OTM Call; Sell 1 OTM Put; Buy 1 OTM Put at Lower Strike Price. If possible the trade is done for a net credit wider than call spread width.

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 1-2% of my account.

Profit Target

If my position shows a profit near 75% of the max potential gain, I will close the position early to lock in profits.

Break-Even Point(s)

Short call strike price plus net credit received.

Categories: Strategies