Market Measures

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Managing BP Expansion Risk

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.

This segment of Market Measures takes a closer look at the relationship between buying power (BP) expansion and the trade duration.

We know that when delta increases, BP also increases. Based on past studies, we have seen that managing early at 21 DTE reduces the delta exposure. Therefore, our study takes a look whether managing early also reduces BP expansion.

The results of our study show that managing early at 21 DTE substantially reduces the magnitude and frequency of BP expansion. This tells us that the risk of BP expansion and delta exposure increase the longer we stay in a trade, and managing early is one way to help reduce delta risk and BP expansion.

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