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Fading Market Highs

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.

Selling calls can be used to utilize the bullish extremes in the market despite the fact that volatility is typically lower in strong markets.

For example, we can categorize the all-time highs and 52-week highs as market extremes. All time highs are more extreme cases while 52-week highs are less extreme, but with more occurrences.

According to our study on 30 Delta calls in SPY, the performance when selling calls at all time highs is not significantly better than selling calls at 52-week highs. Managing trades at 50% of Maximum Profit (obviously) outperforms managing trades when losses are 2 times of the credit received.

Check out the slides for the full details of the study!

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