Market Measures

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Average Moves Pt 2

Market Measures

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Last week we discussed the average moves in SPY and the respective average breakevens on a SPY strangle over the past 14 years.

Today, we are going to see how those breakevens and average moves change when in different IV Rank environments.

Study
  • Sold 1 SD Strangles in SPY
  • 45 DTE, Since 2005
  • Held until expiration
  • IVR Buckets: 0-50, 50-100
  • Compared:
    • Average upside and downside breakeven range as % of underlying price
    • Average actual up and down move as % of underlying price

We find that when IVR is high, we have larger breakevens than when IVR is low, but also, average price moves do not expand by much. This makes the case that in periods of high IVR, your trade is more predicable, contrary to popular belief.

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