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Market Measures

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Modifying DTE Based on IVR

Market Measures

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In the Black-Scholes pricing model, volatility and time variables go hand in hand. So how does our performance look when we adjust our Strangle Days To Expiration when IV Rank changes?

  • SPY
  • Compared selling:
    • 60 DTE strangles when IV Rank < 30
    • 45 DTE strangles in all environments
    • 30 DTE strangles when IVR > 40
  • Holding to expiration and managing winners at 50%

The data validates extending duration when IVR is lower and reducing duration when IVR is higher. Win rate and P/L stay constant. When IVR is low, one can maintain a similar P/L and win rate by extending duration. When IVR is high, one can maintain a similar P/L and win rate by reducing duration.

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