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Strangle Breaches

Best Practices

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

SPY is roughly normally distributed with constant mean and volatility. The strangles we sell we base on standard deviation of risk.

Today, we are going to dig a little deeper into the 1 Standard deviation strangle and run a study to find metrics around being breached.

Study:

  • SPY, 2005 to present
  • Sell 1 standard deviation (SD) strangles
  • Expiration cycle closest to 45 DTE
  • Manage at 50% max profit or hold through expiration

Managing winning trades greatly reduced the percentage of trades that eventually turned into a loser. On average, managing winners at 50% takes less time than getting breached on either the call or put side As a result, managing winners greatly reduced the percentage of trades that were breache

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