- This trade is used when you have no directional bias, but you believe a stock will move up or down enough to capture a profit. It’s commonly used as an earnings strategy.
- Trade Identification: -3,-2,+2,+3
- Technicals: Bi-Directional
- Strategy Type: Vega and Gamma
- Delta: Buy +2 at .50 delta and sell -1 @ .25 delta and -1 @ .75 delta
- -1/+2/-1 composition
- Theta: Negative if the stock stays in the middle, positive if it moves sharply
- Use options 1 to 8 weeks until expiration.
- Vega: Negative.
- Largely hedged from the nature of the spread
- Changes as the trade moves
- Position Size: Small relative to your account. 1-2% is typical.
- Non-Core trading strategy
- Stop loss: none.
- Advanced management and ability are required to make this trade.
- Target: 50-90% of your total credit received
- If the options are OTM at expiration, consider letting them expire. If they are ITM, consider closing to avoid assignment fees which tend to be higher than commissions.