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Market Measures

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Selloff Performance

Market Measures

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In periods of selloffs, who would fare better: premium sellers or buy and hold investors? Let's walk through a study and find out!

Study:
  • SPY
  • 2008, 2015, 2018
  • Sold one 16∆ strangle continuously
    • Managed at 21 DTE
  • Bought and held 100 shares of SPY
    • We assumed a dividend of $1.25 per share per quarter (2 cents per share per day)
  • Compared average daily P/L

We find that not only do the strangles outperform in periods of selloffs when compared to long stock, but the capital requirement is lower for strangles by about 60%. By staying small and applying proper mechanics, we can produce less volatile returns in market selloffs.

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