Under low volatility environments or up-trending markets, the sold option premiums are smaller and the smooth profit zones are narrower. In high volatility environments or down-trending markets, the sold option premiums are bigger and the profit zones are larger. The differences in premiums and profit zones should be taken into account in my target profit for the monthly income trades.
In market conditions that are not extremely up-trending, if profit reaches 8% ~ 10% of portfolio margin or 30% of potential max profit, we should close positions to lock in profit of the month. This reduces the risks of staying in the market. In these types of conditions, the portfolio usually includes 2 to 3 IC’s plus 2 to 1 DC’s. In strong up-trending markets, the portfolio may include 4 IC’s or 3 IC’s plus 3 bull put spreads. In these cases, the targeted profit is smaller due to smaller credits in low IV environment.
Thus, the targeted profit for the following types of positions is listed below, assuming each IC receives a minimal credit of $6.5.
2 IC + 2 DC: Margin $4000, Target Profit $800
3 IC + 1 DC: Margin $6000, Target Profit $600
4 IC: Margin $8000, Target Profit $450
3 IC + 2 Vertical: Margin $10000, Target Profit $360
This table is derived from my calculation based on the principle mentioned here and the trading experiences in the last couple of years.