- Buy UUP Dec 22 ½ call UUPLX 1.85 IV 17.36 Delta .7589
- Sell UUP Dec 25 call UUPLE .50 IV 16.35 Delta -.3505
Debit 1.35 Position net delta .4084
The value of the spread is limited to the difference between the two strike prices, for this position it is 2 ½. If the dollar strength continues until the end of the year this position would almost double in value. With a defined and limited risk of the 1.35 debit and because we are long one option and short the other we offset and neutralize the volatility and time decay risk associated with an individual option position. Since the current correction may continue for awhile longer, we suggest using these longer dated December options to allow sufficient time for the expected correction to be completed.
While UUP is trading with reasonable volume, the options have only been trading since late June and are still fairly thin. Be careful with order entry, use a spread order and adjust the spread price for the next day trading in the ETF by using the position net delta above.
Disclosure: I currently have no positions in the UUP ETF.