The Setup
Sell 1 ATM Call; Buy 2 OTM Calls at Higher 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%. Rising IV will help this trade as inversely declining IV will hurt the trade.
Time Decay/Theta
Time decay works against me. If the position is not In The Money at expiration then 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% of the max potential gain, I will close the position early to lock in profits.
Break-Even Point(s)
There are two break-even points: 1) Short call strike plus net debit paid 2) Long call strike plus the difference between the long call strike and short call strike plus net debit.
