Hey everybody, BEEF here from the tastylive Research Team.
The balance between risk and reward is critical in trading. That being said, we wondered if would it be possible to achieve similar P/L by taking on more risk and managing sooner compared to less risk and holding to expiration.
So…we worked up a study! We looked at market data from the past 5 years in five different ETFs. We then sold 1 standard deviation strangles, holding to expiration, and compared the results to managing ATM straddles at 25% of max profit.
We found that the straddle we managed at 25% of max profit generated a very similar P/L to that of a strangle when held to expiration.
The big take away for me here was the average P/L per day was greatest for the straddle and was achieved on average in 29 days, as compared to 47 days for the strangle!
If you’d like more detail on this study, including the effects of IV Rank, click here!
OK, I’m Mike Hart. Thanks for watching Market Measures Notebook!
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