Market Measures

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Skew and Managing Winners

Market Measures

Skew in index ETFs makes the short Strangle wider on the Put leg and narrower on the Call leg. This adds higher risks on the Call side than the Put side.

We have known that managing winners helps improve the performance by reducing the same risk that holding-to-expiration is fully exposed to. Today, our Research Team analyzed how the Skew impacts the performance when winners are managed. In particular, our team compared:

  • The stock price being higher than entry price
  • The stock price being lower than entry price
  • The stock price being the same as entry price

Ultimately, when looking at skewed Strangles in bullishly biased ETFs, the Put option more greatly influenced premium decay and increased the speed at which the strategy was a 50% winner.

For detailed analysis, watch the segment and see what Tom and Tony have to say about the relationship between Skew and Managing Winners.

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