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
- 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.
