Does this describe you?
- You’d like to participate in any nice rally that comes our way over the next month;
- You’d like to avoid any and all downside risk in case the rally never comes and indexes stay flat or plunge;
- You’d like to get paid just for hanging around and waiting to see what happens.
Here’s a funky little way to do exactly those things. This trade has
all the features that long-theta traders love, including long theta
(positive time decay), defined risk, decent odds of success (80%), and
a credit up front of $0.20. But wait, as they say, there’s more. This
trade has a sweet little bonus range: if the underlying is between the
two short strikes near expiration, you can sell the position for an
additional $0.80 or $0.90. If the underlying is at the lowest strike
(or anywhere below that) near expiration, you just keep the $0.20 and
look smart.
The Thesis
The thesis behind this trade is that a moderately bullish short term
outlook is justified. With implied volatility getting plowed, selling
OTM put verticals doesn’t seem quite right.
To read the rest of this post, just click over to our options trading blog...