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.
- 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