Market Measures

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Breaching a Strangle

Market Measures

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What’s the probability that a strangle is subject to whipsaw? In other words, what’s the probability the put and call strikes are breached during a trade?

Study
  • SPY, 45 DTE
  • 2005 to present
  • 10, 20, 30, 40 delta strangles
  • Recorded how often both the put and call were breached run a single trade.

We discovered that 40 delta strangles got whipsawed significantly more often than lower delta strangles. This is the reason we generally trade 30 delta strangles or lower. Additionally, it did not matter if IV Rank was high or low as the probability of a whipsaw across all delta strangles stayed relatively the same.

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