Bearish Outlook & Low Volatility

The Setup

Buy 1 ITM Put; Sell 1 OTM Put at Lower Strike Price for a net debit

Timeline

Enter trade for 45 – 90 days

Volatility

Since I am a seller of this option I will only enter the trade when IV is below 50%. Increasing IV will help this trade as inversely falling IV will hurt the trade.

Time Decay/Theta

Time decay works negatively against this trade. in my favor. If the strategy is not ITM at expiration it expires worthless

Risk Management

This trade should be less than 1% of my account.

Profit Target

If my position shows a profit near 25 – 50% of the max potential gain, I will close the position early to lock in profits.

Break-Even Point(s)

Long put strike minus net debit paid.

Categories: Strategies