Neutral Outlook & High Volatility
Contents
The Setup
Sell 1 OTM Put; Buy 1 OTM Put at Lower Strike; Sell 1 OTM Call; Buy 1 OTM Call at Higher Strike for a net credit.
Timeline
30-60 days until expiration is optimal. This gives enough time for theta to work out.
Volatility
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 50% 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 call strike plus net credit. 2) Short put strike minus net credit.