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Market Measures

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BP Expansion Risk Reduction

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.

Option sellers face unignorable buying power expansion risk which increases with delta exposure.

According to our study, the buying power risk of 16 delta, 45 DTE puts and calls on SPY can both be significantly reduced by managing early at 21 DTE compared to holding to expiration.

In particular, managing early can significantly reduce the frequency of large buying power expansions, and this effect is especially powerful for the calls.

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