Market Measures

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Scaling Deltas in High IVR Pt. 2

Market Measures

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Usually we default to trading 16 delta strangles in most environments, but what if we moved our deltas closer to the money when IV Rank was high?

Study
  • SPY
  • 2005 - 2018, 45 DTE
  • Compared selling:
    • 10, 20, 30 delta strangles when IVR > 50
    • 10, 20, 30 delta strangles when IVR < 50
  • Recorded daily P/L

We find that when IVR is high, we are better off P/L wise to scale our deltas closer to the money. When IVR is low, P/Ls tend to stay relatively the same for all deltas. Additionally, managing early improved all performance for all deltas and IVR levels across the board.

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