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Market Measures

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Historical Returns on Strangles

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.

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?

Study
  • 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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