Market Measures

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Strangle Targets: Return on Capital Impacts

Market Measures

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

When trading, it's always important to consider returns relative to the amount of money and time we allocate to any given trade.

Given that we target shorter time frames (45days) instead of the traditional longer term time horizons, we need to be extra mindful of capital allocation and efficiency of that allocation.

Today's study looks at short strangles with either 16 delta or 30 delta short calls and puts. The team analyzed whether managing at 25% or 50% of max profit was historically better for return on capital per day.

Although 50% sits in the middle for success rate and average P/L, it appears the most efficient use of capital relative to the time in the trade.

Tune in for Tom and Tony's full breakdown of all the metrics.

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