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Selling Puts: Multiple Down Days

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.

In this Market Measure segment, tastytrade analyzes the performance of Puts sold after consecutive down days in the market.

Waiting for a down day in the market allows Put sellers to buy into weakness as well as sell Puts further Out-of-the-Money, as IV is higher and the options will have more premium priced into them. While we (logically) avoid selling Puts on up days, can the case be made for waiting for multiple down days before selling Puts?

The Research Team conducted a study selling Puts after multiple down days. The parameters for study were:

  • S&P 500 ETF (SPY)
  • 2005 - Present
  • 45 DTE
  • Short 30 Delta Puts
  • Compared: All Occurrences, All Down Days, Consecutive Down Days (1, 2, 3, 4, 5, and 6)

While the expected number of consecutive down days diminishes over time, we tend to see an increase in the VIX, allowing traders to collect higher premiums in the Puts that they sell. Therefore, waiting longer for multiple down days increased both the win rate and the average P/L when selling Puts.

In conclusion, waiting for consecutive down days before entering short SPY Puts has historically outperformed single down-days. However, this can hinder the number of occurrences executed; traders have to time their spots and reserve capital to fully take advantage of multi-day moves.

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