Market Measures

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Risk/Reward Across Deltas

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.

Trading is all about measuring risk against reward to pick the best probability of success for our trade.

What delta provides traders with the most value in terms of risk and reward?

Study
  • SPY, 45 DTE, 2005-2018
    • 10, 16, 20, 30, 40, and 50∆ strangle (over 20,000 occurrences)
    • Managed at expiration and 21 DTE
  • Recorded average P/L, and volatility of P/L of both strategies
Results

We find that although higher delta strangles deliver greater raw P/L, the lower delta strangles provide a better value in terms of lower risk per each dollar you stand to make.

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