Neutral Outlook & Low Volatility

Directional Assumption:  Neutral


Setup:

– Sell near-term Put/Call around 30 DTE
– Buy longer-term Put/Call in the Back Month around 60 days DTE at the Same Strike Price for a net debit or credit.


Timeline:- The front-month option should be at least 30 days and not more than 45 days.


Ideal Implied Volatility Environment: 50% or lower IV. Rising IV will help this trade.


Max Profit:  Credit received from opening trade. Max profit is realized when the stock price is between the short strikes at expiration.


Max Loss: The debit paid.


Time Decay/ThetaTime decay works in my favor.


Profit Target: If my position shows a 25% I will close the position early to lock in profits.


Risk Management: This trade can be scaled up to 1% of my account.


Break-Even Point(s):

It cannot be calculated due to options being in two different time periods.

The most I can lose is the debit I paid.

If the stock price moves too far from our strikes, the trade will become a loser.


Categories: Strategies