Range-Bound Markets — Iron Condors
When to Use It
When the underlying is trading in a well-defined range with no clear directional catalyst. The iron condor collects premium from time decay while having a wide enough range to tolerate modest volatility without taking losses.
Structure
Sell OTM put spread (lower strikes) + sell OTM call spread (upper strikes). Both spreads are outside the expected trading range. The wider the wings, the more profit potential but also more risk if the underlying breaks out.
Key Metrics
Target 30–45 days to expiration. Wing width of 15–20 S&P points (or equivalent). Collect a net credit of $1.50–$2.50 per spread. Max risk = width minus credit received.
Exit Rules
Take profit at 50% of max profit. Stop out if the short strike is breached and the long leg cannot be rolled. Never hold through a major event (FOMC, CPI) without adjusting.
Moderate Upmove — Bull Call Spread
When to Use It
When you expect a moderate move higher — enough to be profitable but not a runaway move. Buying a naked call is expensive in high-IV environments; the spread reduces cost while maintaining directional exposure.
Structure
Buy a call at a lower strike; sell a call at a higher strike. Same expiration. Net debit. The long call captures the upside; the short call funds it. Max profit = the difference in strikes minus the net debit.
Key Metrics
Buy 2–3 strikes below expected move. Target 30–45 DTE. Net debit should be no more than 50% of the intrinsic value of the long call at entry.
Exit Rules
Take profit when the long call reaches 2x the debit paid. Move the short strike up (rolling) if the underlying breaks through. Don't hold past 2 weeks before expiration if underperforming.
Earnings / Event — Long Gamma / Calendar Spread
When to Use It
Before known events (earnings, FDA decisions, mergers) where implied volatility will collapse post-event regardless of the price outcome. Two strategies work here: buying naked options (high risk, high reward) or a calendar spread (defined risk, moderate reward).
Structure — Calendar Spread
Sell the near-term option; buy the same strike and quantity in a later expiration. The near-term option's IV collapses post-event; the longer-dated option retains value. Net debit; profit comes from the IV differential between expirations.
Key Metrics
Use ATM or slightly OTM strikes. Front-load IV should be in the 60th+ percentile historically. Never risk more than 2% of capital on a single calendar spread. Spread the risk across multiple strikes.
Exit Rules
Close the spread the day after the event once IV crush is complete. Do not hold the long option side through a second event. Exit if the position loses more than 50% of the debit before the event.
Income — Covered Call / Short Put
When to Use It
When you want income generation on a stock you own (covered call) or on a stock you'd be willing to own at a lower price (cash-secured put). Both strategies collect premium in exchange for obligation.
Structure — Covered Call
Own 100 shares of the underlying. Sell one call per 100 shares. Call strike should be above your cost basis by a margin you find acceptable. Pick expirations 3–6 weeks out. Manage or close before ex-dividend dates.
Structure — Cash-Secured Put
Sell a put at a strike at or below your target buy-in price. Set aside enough cash to cover the purchase if assigned. Collect premium. Either the put expires worthless (you keep the premium) or you get assigned at your target price.
Exit Rules
Covered calls: buy back if the underlying drops >10%. Roll up and out if the underlying runs to the short strike and you want to maintain exposure. Short puts: roll down if the underlying drops significantly and you want to maintain the position at a lower cost basis.