This strategy is a swing trade strategy for buying/selling calls or puts on the SPY or any of the indexes. What sparked my curiosity was John Carter talking about this strategy. I have modified it to the way I trade and will study this with small entries. I will post the outcomes as soon as trade setups come my way. I can also run this as a credit play if I want to sell options and use theta and skew direction both in my favor.
Directional Assumption
Bullish or Bearish
When to Run It
- When SKEW crosses 135
- When SKEW crosses 120
Setup
Debit Play
- When SKEW crosses below 135 Buy OTM delta 30 puts
- When SKEW crosses above 120 Buy OTM delta 30 calls
Timeline
60-90 days out
Profit Target
200% return or when skew climbs above 125 if I bought calls or drops below 130 if I bought puts.
Time Decay
As time goes by theta works against me unless I am selling options.
Maximum Profit
Potential profit is unlimited.
Maximum Loss
The cost of what I paid for the options.
Risk Management
This trade should be 1% or less of my account.
Tip
Note: It is okay to buy ITM options, I will just pay more and possibly lose more. The trade off being less extrinsic premium.
I can also run this as a Vertical Spread for a cheaper premium and smaller loss in case the strategy moves against me. The trade off is a smaller gain.
I can also run this as a credit play if I want to sell options and use theta and volatiltiy skew in my favor.
