1. 📌 Strategy Overview

A neutral, short-duration income strategy designed to profit from the time decay (Theta) differential between two expiration cycles while utilizing a Long Vega profile to hedge against volatility spikes. This system uses a 15 DTE short option wing paired with a 30 DTE long option wing to create a “Volatility Arbitrage”.

2. 🌍 Market Selection

• Primary Underlying: SPX (High liquidity, cash-settled, and tax-efficient).
• Volatility Filter: VIX ideally between 15 and 25.
• The Backwardation Edge: Enter when the Front-Month IV (15 DTE) is higher than the Back-Month IV (30 DTE). This allows you to sell “expensive panic” and buy “discounted protection”.

3. 🧩 Trade Structure (One Unit)

• Structure: 15 DTE Short Strangle / 30 DTE Long Straddle (or wide Strangle).
• Short Strikes (15 DTE): Sell 25–30Δ on both calls and puts.
• Long Strikes (30 DTE): Buy protection 5–10 points further OTM (for Diagonals) or at the same strike (for Calendars).
• Asymmetric Skew (Optional): In high-VIX regimes, give the put side more “breathing room” (e.g., 385 points down vs. 150 points up) to respect sharp downward moves.

4. 📅 Entry Rules & The “Pre-Flight” Scan

• Horizontal Skew (IV Ratio): Calculate Ratio = IV_Short (15 DTE) / IV_Long (30 DTE).
  • > 1.00: Green Light (Backwardation/Volatility Arbitrage).
  • < 0.90: No Trade (The Contango Trap).
• Vertical Skew Scan: Ensure put side premiums are significantly “juicier” than calls due to market fear.
• The EM Anchor: Ensure your short strikes are at least 1.2x the 1x Expected Move to maintain a high statistical win rate.

5. ⏹ Exit Rules (The Harvest Protocol)

• ✅ The 10% “Wake Up” Call: At +10%, choose to Bank or Run. If price is centered and has 5+ days to expiry, move the mental stop to +5% and target the 25% hard ceiling.
• ✅ Profit Target: Exit at 25% return on initial debit.
• 🛑 Stop Loss: Close immediately at -25% of initial debit. Recovery probability drops sharply beyond this level.
• ⏳ 48-Hour Kill Switch: Mandatory exit 2 days before the 15 DTE shorts expire. This avoids the “Gamma-Scythe,” where small moves cause violent P/L swings near expiry.

6. 💰 Risk Profile & Strategy Philosophy

• The “Sleep-at-Night” Greeks: Target Delta Neutrality (0.0 to 0.27) and high Daily Theta collection.
• Volatility is the Margin of Safety: We use Long Vega exposure to protect the portfolio if the VIX spikes.
• The Valley: Profit is maximized when SPX remains centered in the “Valley” between your short strikes, harvesting maximum decay.