Market Measures

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Expiration Strangles

Market Measures

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We can be tempted to buy strangles on expiration Friday in hopes of profiting from big market moves, or in low IV environments hoping to profit from rather low option prices. However, our study on SPY strangle has suggested the negative performance of these strategies.

Our study (from 2005-present) shows:

  • buying 16 delta SPY strangle at Thursday close and holding it to Friday close leads to negative performance with average P/L equal to -$12.
  • buying SPY strangles when VIX is less than 15 and holding it for one day leads to better but still negative performance with average P/L equal to -$1.

Therefore, despite it being tempting, buying strangles on expiration Friday or in low IV environments are not profitable strategies.

Tune in as Tom and Tony dive deeper into the results.

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