Market Measures

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Historical Returns on Strangles

Market Measures

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Return on capital is a metric that tells us how much P/L we collect as a % of initial buying power reduction. The question in this segment is how stable is this return on capital figure across the last 14 years?

  • SPY, 2005 to 2018
  • Selling 16 delta put and calls (strangles)
  • 45 days to expiration
  • Held to expiration
  • Observed average historical return on capital for four periods since 2005

We find that on average we can expect to collect in our P/L roughly 3% of the buying power reduction. Return on capital stayed pretty consistent throughout the last 14 years with the exception of 2008-2010 where ROC was higher than average due to declining volatility after 2008.

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