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Straddle Management Targets

Market Measures

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A short straddle is a strategy comprised of selling an at the money put and an at the money call. Similar to a strangle, the short straddle benefits from a contraction in volatility and neutral price movement. At tastytrade, we manage straddles at 25% of the max profit and we manage strangles at 50% of their potential max profit. Since we use a duration-based management target to reduce volatility for strangles, should we also incorporate one for straddles?

The Study:
  • SPY
  • 45 Days to Expiraiton
  • 2005 – Present
  • 50 delta Straddles
  • Comparing Varying DTE Management Strategies
Results:

The longer we hold the straddle the greater the average P/L however the lower the daily P/L. When we manage straddles at 14 days, we see increased cumulative performance and lower portfolio volatility.

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