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?Study
- 2005 - 2017, 16 Delta
- Compared selling:
- 60 DTE strangles when < 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.