Neutral Outlook & High Volatility

The Setup

Sell 1 ATM Put; Buy 1 OTM Put at Lower Strike; Sell 1 ATM Call; Buy 1 OTM Call at Higher Strike for a net credit.


30-60 days until expiration is optimal. This gives enough time for theta to work out.


Since I am a seller of this option I will only enter the trade when IV is over 50%. The higher the better. Falling IV will help this trade as inversely rising IV will hurt the trade.

Time Decay/Theta

Time works in my favor as theta decay gives me money each day on the trade.

Risk Management

This trade can be scaled up to 3-5% 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)

Two break-even points: 1) Short strike plus net credit. 2) Short strike minus net credit.

Categories: Strategies / Studies