Market Measures

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Effect of Volatility on P/L

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.

Nothing is free. This applies to everything in trading including selling premium in High IV environments. What is the cost to selling premium in various IV environments?

Study:
  • Sold 1 Standard Deviation Strangles in SPY, 45 DTE, Since 2005
  • Managed at 21 DTE
  • Segregated by IVR levels
  • Recorded average P/L, success rate, volatility of P/L

Ultimately, the Research Team found that as we sell in higher IVR, we earn higher P/L, however, we also experience greater swings in our portfolio. However, the increase in P/L in higher IVR environments is much greater than the relative increase in portfolio volatility.

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