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Market Measures

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Efficiency Metrics

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.

Efficiency can mean a lot of different things, and today tastytrade breaks down two different types of efficiencies: risk efficiency and capital efficiency.

Study:
  • SPY, 45 Days to Expiration, 2005 - Present
  • 10-50 delta strangles
  • Compared
    • Efficiency with respect to risk and return
    • Efficiency with respect to profits and capital usage
  • Variables in play
    • Average P/L, average volatility of P/L, average BPR
  • Note: results may look slightly different than in previous segments. Results here reflect most recent data.
Results

We find that the lower delta strangles (10-20) tended to be more risk efficient (carry more P/L per dollar of risk incurred) while the 30-40 delta strangles were more capital efficient (carry more P/L per capital usage).

This means that there is no strategy that is "most efficient" or "best". Different strategies carry different levels of efficiency, so they each have their place in our portfolios.

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