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Short Put Enhancement

Market Measures

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According to our study, adding short call on short put can reduce the volatility of our portfolio without hurting P/L and without requiring additional capital.

Based on our study in short positions on ATM put and 50 delta put / 16 delta call strangle on SPY with same capital allocation and both managed at 50% of max profit, we find out that adding the 16 delta call can reduce the volatility of our portfolio without hurting its average P/L. This also aligns with our intuition, because the decreased delta after adding the call is supposed to reduce the portfolio volatility in the long term.

Therefore, adding the call to short put position can reduce the volatility of our portfolio without hurting its average P/L, so this strategy is possible for anyone trading short puts already.

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