Buying Power Reduction is a complex formula that has many variables in it. How can we simplify it and understand what variables affect it?Study
- SPY, 2005 through 2018
- Sold 16 delta strangles
- 45 DTE
- Compared starting buying power reduction to:
- Underlying price, initial credit, implied volatility, varying deltas strangles
- Note: All charts use 16 delta strangle data except the chart that compares varying delta strangle BPR
We find that the variables that affect buying power reduction are underlying price and delta. Initial credit does not have a direct relationship with BPR. IV has a negative relationship with the buying power of a 16 delta strangle.