We have received many emails asking if buying Straddles with shorter duration and a low implied volatility (IV) is a profitable strategy.
Our study was conducted in SPY (S&P 500 ETF) from 2005 to present. We bought the at-the-money (ATM) Straddle in both high and low volatility environments and compared durations of 1, 2, 3, 4 and 5 days to expiration (DTE) and held the trades through expiration. A table of the long straddle results was displayed. The table compared the average P/L and probability of profit (POP) on the 1, 2, 3, 4 and 5 DTE Straddles.
Our second study had the same parameters except that the trades were entered only when IV was below 15. A table of the long Straddle in low IV environments was displayed. The table again compared the average P/L and probability of profit (POP) on the 1, 2, 3, 4 and 5 DTE Straddles.
For more on this and related subjects see:
Market Measures: from June 12th, 2014: "Long Strangles"
Market Measures: from June 11th, 2015: "Low Implied Volatility | Long Straddles"
Market Measures: from July 14th, 2015: "Long Straddles into Earnings"
Market Measures: from August 7th, 2015: "Low IV | Buying Dynamic Iron Flies?"
Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the valuable takeaways and to find out whether buying Straddles with a short time until expiration in a low IV environment is a profitable strategy.
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