STRAT-Based ATM Put Spreads

The Rationale (The "Why")

This strategy leverages the directional bias identified by "The STRAT" methodology to construct aggressive, at-the-money (ATM) put spreads. By targeting the ATM strike—the option with a delta closest to 50—this trade offers a roughly 50:50 risk-reward profile, maximizing the potential gain for the risk taken.

The scanner uses put spreads for both bullish and bearish signals. This creates a powerful strategic advantage:

• When The STRAT signals a bullish bias, a Bull Put Spread profits from theta decay and upward stock movement and gets an added tailwind from the drop in volatility ("vol crush") that often accompanies a rising stock.
• When The STRAT signals a bearish bias, a Bear Put Spread profits directly from the stock falling and gets an added tailwind from the increase in volatility ("vol expansion") that typically happens during a sell-off.

By using puts for both scenarios, the strategy is optimized to gain an additional edge from how volatility behaves during directional moves. Note that the credit spread pays off on the price moving away from it, toward but not through its short strike, or sideways - while the debit spread is much more directional, requiring the price to move in its direction and through it for a maximum return.

How to Trade It (The "What")

1. This scanner produces two types of ATM put spreads based on the STRAT signal:
   • Bull Put Spread: A credit trade that receives the premium up front. The short strike will be near the stock's current price.
   • Bear Put Spread: A debit trade for which a premium is paid. The long strike will be near the stock's current price.
2. For Bull Put Spreads (credit): The max profit is the credit received, and the max loss is the spread width minus the credit.
3. For Bear Put Spreads (debit): The max profit is the spread width minus the debit paid, and the max loss is the debit paid.

4. The Profit Engine: Direction + Volatility. The goal is to profit from the anticipated directional move. A key advantage of this put-only approach is that volatility changes work in your favor in both scenarios. A rising stock helps bull put spreads, and a falling stock helps bear put spreads.

5. Trade Management: Because these are aggressive ATM trades designed to profit from a quick directional move, they are not meant to be held to expiration. A common professional approach is to enter a Good-Til-Canceled (GTC) order to close the position for 50-75% of its maximum potential profit. If the predicted STRAT move occurs, these gains can often be captured in a couple of days or even hours, freeing up capital and flattening risk.