Market Measures

Monday – Friday | 9:00 – 9:20a CT

Importance of Capital Allocation

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.

The question we get often is how much capital should I have invested? Usually we don't invest more than 50% of our buying power into positions. But why?

  • SPY, 2005 - present
  • 45 days to expiration
  • Sold 16 delta strangles (16 delta calls and puts)
  • Simulated five $1M portfolios where we continuously allocated 10%, 20%, 30%, 40%, and 50% of our buying power to the strangles
  • Held each strangle to expiration

We find that allocating past 50% showed diminished long term results because of the down turn in 2008. Over the past 14 years, the portfolio that was allocated 40% to strangles performed the best P/L wise.

Market Measures More installments

See All »

Latest tastytrade Videos As of July 10

Most Shared From the last 30 days