Expiration Friday can be a tempting day to buy straddles in hopes of the market making big moves and, therefore, returning large profits on a small amount of capital invested.
How do we perform if we boughton Thursday’s close and held them to expiration Friday?Study:
- SPY, 2005-present
- 1 DTE
- Bought ATM straddles
- Held to
- Recorded P/L and win rate
The result is a negative P/L over time even if the market is volatile and more swings are present. This suggests that short premium strategies outperform long ones no matter the duration and volatility levels.