If we split the strangle into its two components, puts and calls, how does the performance look like for each leg in different market environments?
Higher delta calls outperform in bear markets and lower delta calls outperform in bull markets, but in on average, the 16-30∆ calls outperform.
Generally, puts make more money with higher deltas, however, if we take volatility of P/L into consideration, 50∆ puts carry roughly 3x more risk than 16∆ puts, but only make 2x as much as the 16 delta.
The main point here is that trying to optimize your call and put deltas to match the market environment is difficult. This is because we do not know what market environment we are in until after it occurs. Therefore, the only metric that makes sense to follow is the long run average with both types of market environments present.
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