Liz and Jenny are joined by James from the research team to cover two Market Measures from last week.
Probability of Touch and Rolling:
A table of the actual probabilities of touching the 1 standard deviation strangle bounds were displayed. The table included the percentage the strangle expired in-the-money (ITM) and the percentage it touched before expiration. The table compared the expected (per side) to the upside actual and the downside actual. The table showed that the bounds of touch were lower than expected.
A two part study was conducted using the SPX (S&P 500) and VIX data from 1900 to present with 6500 occurrences, to see how often we touched one side of the boundaries and then touched the new 30 delta rolled side, both upper and lower bound.
Our first measure was of the expected and actual percentages that the 30 delta strike of the rolled strangle short put was touched after a large market sell-off was displayed. The table showed the percentages the new 30 delta upper bound was touched and the percentage that it expired below the new upper bound.
Our second measure was of the expected and actual percentages that the 30 delta strike of the rolled strangle short put was touched after a large market increase. The table showed the percentages the new 30 delta lower bound was touched and the percentage that it expired below the new lower bound.
Trading Price Extremes | Buy Dips, Sell Rips
A study was conducted using SPY (S&P 500 ETF) from 2005 to present. We looked at week-over-week moves that were greater than 2.5%. After down moves we sold the at-the-money (ATM) put with 45 days to expiration (DTE) and compared it with buying 100 shares of SPY. After up moves we sold the at-the-money (ATM) call with 45 days to expiration (DTE) and compared it with selling 100 shares of SPY. We held both positions until expiration.
A table comparing a short ATM call position in the SPY to a short 100 shares of SPY on week-over-week market increases that were greater than 2.5% was displayed. The table included the average P/L, percentages of profitable trades and largest loss on both.
A separate table comparing a short ATM put position in SPY to a long 100 shares of SPY position on week-over-week market decreases that were greater than 2.5% was displayed. The table included the average P/L, percentages of profitable trades and largest loss on both.
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