traderjuice
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hi, i wanted to get people's opinion if this is low-risk, low maintenance strategy
buy otm leaps that are 2 years + out, sell current option at same strike price
I would do both calls and leaps, but i would prefer puts only since they are generally cheaper than calls
The idea is that leaps are 'cheaper' than current month strikes, that that money spent on the leap will be recovered by selling the current month strikes. I'm only thinking about indices like qqqq, iwm, dia for this strategy because of their high liquidity and i don't have to worry about earnings spikes.
I want to wait until the index is at a relative high before buying the put leap, and wait until the index is relatively low before getting the call leap. This is so I can get them cheap. I would like to time it so I sell the current month calls near a high and current month puts near a relative low, but I'll take the premium if I believe I can make up the cost of the leap option based on the time I have left before it expires.
Once the spread is established, the only time I get out is from both options get itm. I would use a contingent order to close both positions. Since the leap has more time premium, i should be able to come out with a net profit if this happens. Ideally, i want the underlying to go sideways so I can continue to sell options against my leap.
Now the downsides. Now is a bad time because since volatility is so high, a drop is likely in the near futures, which would reduce the value of the leap greatly. It would make the current month option expire worthless, but it would also be difficult to sell the next month option at the same premium since the volatility decreased.
The other concern is if the underlying moved strongly in one direction. In the case of the put calendar spread, if the stock moved consistently higher, I would have to sell current month options at strikes that are less otm then the calendar spread in order to get an acceptable premium. This would be ok, i suppose. But if the option i sold becomes itm, I would need to buy it back at a loss. If sell the leap at this point, I would be overall at an loss, based on how many days before the leap expires.
Are they any other adjustments that I can do? Feedback greatly appreciated.
buy otm leaps that are 2 years + out, sell current option at same strike price
I would do both calls and leaps, but i would prefer puts only since they are generally cheaper than calls
The idea is that leaps are 'cheaper' than current month strikes, that that money spent on the leap will be recovered by selling the current month strikes. I'm only thinking about indices like qqqq, iwm, dia for this strategy because of their high liquidity and i don't have to worry about earnings spikes.
I want to wait until the index is at a relative high before buying the put leap, and wait until the index is relatively low before getting the call leap. This is so I can get them cheap. I would like to time it so I sell the current month calls near a high and current month puts near a relative low, but I'll take the premium if I believe I can make up the cost of the leap option based on the time I have left before it expires.
Once the spread is established, the only time I get out is from both options get itm. I would use a contingent order to close both positions. Since the leap has more time premium, i should be able to come out with a net profit if this happens. Ideally, i want the underlying to go sideways so I can continue to sell options against my leap.
Now the downsides. Now is a bad time because since volatility is so high, a drop is likely in the near futures, which would reduce the value of the leap greatly. It would make the current month option expire worthless, but it would also be difficult to sell the next month option at the same premium since the volatility decreased.
The other concern is if the underlying moved strongly in one direction. In the case of the put calendar spread, if the stock moved consistently higher, I would have to sell current month options at strikes that are less otm then the calendar spread in order to get an acceptable premium. This would be ok, i suppose. But if the option i sold becomes itm, I would need to buy it back at a loss. If sell the leap at this point, I would be overall at an loss, based on how many days before the leap expires.
Are they any other adjustments that I can do? Feedback greatly appreciated.
