“Ceteris paribus” is a term used to describe other factors remaining constant or unchanged. While typically used in an economical setting, it can also be applied to trading and market relationships. For instance, time and time again we’ve established 45 DTE as our optimal time frame for entering trades, but can this be applied to all market environments when all factors are NOT constant?
The Research Team conducted a study to compare the various timeframes to sell a Strangle while simultaneously analyzing varying market conditions for these durations.
Using SPY from 2005 to present, our team sold 30 delta Strangles at 45, 150 and 365 DTE. In addition to seeing which duration was optimal with all other things being equal, tastylive compared:
- Managing the strangles at 50% of maximum profit
- Selling the Strangles at different IVR levels
The Results
At first glance, the actual average P/L per day was greater at 45 DTE than at 365 DTE when letting the positions expire.
If the strangles were managed at 50% max profit, their actual P/L per day became closer to maximum theoretical P/L per day.
Finally, tastylive filtered by high IVR, which saw the best results for P/L per day metrics, probably attributed to Theta and Vega working in favor of the initial trade.
In short, 45 DTE Strangles displayed the most profitable potential P/L per day due to the sizable credit received by the seller relative to a medium timeframe. The results also confirmed this relationship when selling in high IVR environments and managing the profits.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.