Market Measures

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Go Small or Go Home

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.

Today, we used historical SPY option data to explore the benefits of trading small and gathering a large number of occurrences.

Trading small enables a large number of independent occurrences which we can use to combat the randomness of the market.

In the study, Tom and Tony talk about how, mathematically, trading small provided less risk than trading in bulk.

The average P/L and volatility of P/L of selling one contract a day is significantly more desirable than selling contracts in bulk when managed at expiration or 21 DTE.

The portfolio volatility of selling one contract a day is less than 5% of the risk selling in bulk, and the P/L historically was better when selling periodically as opposed to in bulk.

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