Market Measures

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Directional Bets When Long or Short Premium

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.

Today, we will compare long deep in-the-money Puts to short out-of-the-money Calls and short out-of-the-money Puts.

  • SPY, 2005-2016
  • Buying 80 Delta Puts
  • Selling 30 Delta Puts
  • Selling 30 Delta Calls
  • All held to expiration
  • Compared:
    • When SPY increased from entry to expiration
    • When SPY decreased from entry to expiration
  • Long Puts are only profitable on large down moves
  • When looking at all occurrences, both short calls and short puts have high success rates and net positive results, especially when combined.
  • This study did not take into account managing at 50%, which would likely improve short Puts and short Calls results.

Check out the segment as Beef, Bat and Pete discuss their most important takeaways from the study.

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