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Market Measures

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Selling Strangles vs. Buying Stock

Market Measures

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The biggest banks have some bullish estimates for where the market will end the year. Looking at the deltas of these forecasts, bank estimates have a low likelihood of realization. This led us to ask, how would performance look if we went long stock as compared to selling strangles?

The Study:
  • S&P 500 (SPY)
  • 2005 - Present
  • Compared long 100 shares of SPY to short 1 16 delta strangle in SPY.
    • Average Monthly Profitability
    • Standard Deviation of P/L

When we equate the capital usage of long 100 shares of SPY to 1 16 delta strangle in SPY, we find that although the risks and rewards are similar, the probabilities greatly favor the strangle.

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