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This strategy uses put spreads to finance the cost of a long call, creating a low-risk structure with high odds of a small gain - and the potential for unlimited profit if the stock breaks out. It’s designed for traders who want defined downside, frequent wins, and exposure to a strong rally without committing much capital. Using Option Samurai’s Custom Strategy builder, you can scan the market for this setup and tailor it to match your view and risk tolerance.

Strategy Setup

Here’s the structure:

• Finance a long call by opening 2 put spreads:

  • Buy 2 deep OTM puts

  • Sell 2 closer-to-the-money puts

• Buy 1 far OTM call (same expiration)

This setup works by using the premium from the put spreads to help finance the long call, reducing overall cost while keeping upside potential. The combination leads to a trade with defined loss, frequent small gains, and occasional large profits.

This is the strategy P&L:

This structure performs well when the stock trades sideways or rallies, while still giving you upside exposure if a breakout happens.

When to Use It

This strategy is best in the following conditions:

• You are bullish on the stock

• You want low risk, high win rate, and controlled capital usage

• You want to stay in the game if the stock unexpectedly breaks out

It’s a limited loss setup with asymmetric potential. That takes advantage of our custom option strategy that allows you to scan the entire market and find trades you can’t find any other way.

How to Scan for It in Option Samurai

Here are the simple steps to follow

1. Open the Custom Strategy builder.

2. Add three legs:

   • Buy 2 puts with lower strikes (deep OTM)

   • Sell 2 puts with higher strikes (closer to ATM)

   • Buy 1 call with a far OTM strike

3. Set filters for ideal setups. For instance, you could go for:

   • Probability of Profit > 90% (or whichever threshold you prefer; you could be fine with 80% or even 70%)

   • Max Loss under a defined threshold (e.g., $1,000)

   • Days to Expiration: 15-45

   • Bid-Ask Spread: Under $1

   • Delta: Use as needed to control exposure

   • Implied Volatility Rank: Over 40% for richer premiums

4. Analyze the structure using the scenario engine and P&L chart.

Notice that we also have a predefined scan on this strategy, and you will find it at the bottom of the article.

Trade-Offs to Consider

This strategy is flexible; you can adjust the structure based on your market view and risk appetite:

• More Put Spreads = More Credit: Selling more put spreads increases your upfront credit, which can be used to buy a call that's closer to the current price. However, it also increases your potential loss if the stock drops sharply.

• Call Strike Distance: A far OTM call costs less and offers more leverage if the stock surges, but it may expire worthless. A closer call gives you a higher chance to profit on a moderate rally but may introduce a risk of loss in sideways moves if it's not fully financed.

• Put Width and Distance: Wider spreads or strikes closer to the money offer more premium but also increase the size of your max loss. Tighter spreads reduce risk, but also limit the credit available to finance the call.

Think of this structure as a dial: you can tune it to be more aggressive or more conservative depending on your market thesis and trade objectives.

A Real-Market Example of This Strategy

Let’s look at a real JPM setup using this strategy.

Trade Structure

• Buy 2 puts at 240 strike, paying approximately $1.84 each

• Sell 2 puts at 245 strike, collecting approximately $2.39 each

• Buy 1 call at 305 strike, paying approximately $0.215

• Net debit/credit = −2×1.84+2×2.39−1×0.215=+0.885. So you enter the trade for a small net credit (around $88.50 per spread, before commissions).

Your P&L profile would look like this:

Let’s take a look at what the picture above says:

What Makes This Trade Appealing:

• Defined (unlikely) risk, around $1,000 worst-case

• High probability of profit if the stock stays above the lower strike

• Small net credit to start the trade

• Optionality to capture big upside if JPM breaks out aggressively

Visual Representation:

The P&L chart for this exact trade (shown above) illustrates the behavior:

• Flat or gently upward-sloping profit across a wide range

• A capped loss in the unlikely event of a sharp drop

• Linear upside if the stock breaks above the call strike

This kind of structure works well for traders who want steady income and don't want to miss out on a breakout - but still need to keep risk under control.

Final Thoughts

This setup isn’t about making big bets. It’s about stacking the odds in your favor with small, frequent wins - and having a call option in place just in case the stock takes off.

With Option Samurai’s custom scan tool, you can build and filter for these strategies across the entire market. Use it to generate ideas that fit your goals and trading style - with full visibility into risk and reward before placing a trade.

Read More

Our guide on the custom scan feature (Custom Options Strategy Scanner)

Our high-probability predefined scan for this strategy (Financing Long Call with 2 Put Spreads with High Probability of Profit)

Our riskier but more rewarding predefined scan for this strategy (Financing Long Call with 2 Put Spreads) 

Try this strategy in our options screener