With the delta rebalance strategy, when a leg becomes tested, we roll the entire position to the original trade's deltas. How has this strategy performed historically?
The Study:- SPY
- 2005 - 2017
- 1 Standard Deviation Strangle
- 45 Days to Expiration
- Compared:
- Holding Positions to Expiration
- Rebalancing the Position to Original Delta when Tested.
Ultimately, rebalancing a trade's delta produces a fair win rate with shorter duration and cuts the largest loss in half.
Also, our research indicated that 40% of the tested positions had a positive P/L when the leg became tested, making the case that rolling to re-establish the position is not as costly as once thought.
