Selling Puts is a standard strategy for creating long deltas in a portfolio because it typically creates a generous breakeven price to the downside. However, is this strategy more effective in terms of win rate and returns than a Long Call Spread? Should one be used over the other in an IRA?
To find out, our Research Team analyzed SPY options with 36 DTE and tracked the maximum potential profit, Buying Power Effect and the potential ROC. Originally, the Long Call Spread appeared to be the more appealing of the two strategies.
Still, both strategies have favorable features: the defined-risk nature of the Call Spread, the short vega in the short Put, the larger downside cushion in the short Put and the bigger payoff if the short Put remains OTM.
To dig a little deeper, tastylive conducted another study in SPY analyzing Win Rate, Average P/L, days in trade and ROC using:
To summarize, long Call Spreads tend to be a more efficient use of capital especially in low IVR environments, than short cash-secured Puts when attempting to get long an underlying in an IRA. However, short Puts performed much better in terms of win rate and Average P/L in high IVR, and slightly better in all environments.
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