Hey everybody, BEEF here from the tastylive Research Team.
One of the cornerstones of our trading strategy is selling premium during periods of high implied volatility. But over the past 10 years we’ve obviously seen many different environments and market fluctuations. So we decided to test how a consistent short premium strategy has fared over a longer time period, and how it compares to trading only during periods of high IV.
So we cranked out a study in which we sold 1 standard deviation strangles in three ETFs on the first of the month every month from February 2005 to the present and held them to expiration.
First, we looked at the combined results over the past 10 years for all our 360 occurrences after commissions. We found that the probabilities came in higher than expected despite the various market environments.
Next we sorted by high and low IV rank to compare the differences. When IV was over 50 we found there was a high percentage increase in P/L, Percentage of Wins, Average Credit and average P/L per trade. But when IV was low, we still observed a win rate over 80%, a positive P/L, and an average P/L per trade of more than $19.
This study really drove home the fact that selling premium holds up in all types of market environments.
If you want to take a closer look at all the charts we put together, click here!
OK, I’m Mike Hart. Thanks for watching Market Measures Notebook!
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