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. You could buy calendar spreads to try to participate in any rally if you wanted. But what if we rally hard, and volatility just falls further? On a relative basis, your long-dated calendar contracts won’t appreciate it very much. So something a little bit more complex may be warranted. That’s where our broken-wing call condor comes in.
The Trade
The trade details will be emailed out immediately to our newsletter subscribers and posted on the secure part of the site, along with a graph of the precise risk profile, and some variations to add or decrease risk.
If you’re not a subscriber yet, what on Earth are you waiting for? (Sorry, that’s a bad pun: there’s a short waiting list.)