Calling All Fans!

We're letting tastynation call the shots! Give us your trade idea or let us solve your problems.

Submit

Market Measures

Monday – Friday | 9:00 – 9:20a CT

Average Moves

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.

Some of the many ways that tastytrade has found the effectiveness of selling premium is through studies involving:

  • Implied volatility overstating realized volatility
  • Average P/L being positive over the last 14 years
  • Probability of profit being above 50%

Today we are going to discuss another reason of the effectiveness of premium selling: average movements vs average breakevens.

Study
  • Sold 1 SD Strangles in SPY
  • 45 DTE, Since 2005
  • Held until expiration
  • Compared:
    • Average upside and downside breakeven range as % of underlying price
    • Average actual up and down move as % of underlying price

We find that average moves in the stock price understate average breakevens by multiple percentage points, meaning that on average, our strangles will most likely expire worthless over the past 14 years. However, this is not to say that there is inefficiency in the market, rather that strangle sellers have been right more times than wrong.

Market Measures More installments

See All »

Latest tastytrade Videos As of July 22

Most Shared From the last 30 days