For this market measures, Tom and Tony discuss how wings affect a Strangle's performance. We trade Strangles with wings for their large initial credit, great POP, defined risk, and less BPR, but are there additional benefits to the Strangle?STUDY:
- 2005-Present, SPY
- 45 DTE
- Sold 16 Delta
- Sold 16 Strangles and bought: 2, 5, 10 Delta Wings
- at 50%; IV Rank > 20%
When only considering winners, we see a harsh deduction in average profits depending on the size of the wings. When considering all trades, defining risk is only a marginal adjustment. Over the long run, naked Strangles have been more profitable than Strangles with wings.
Selling Strangles with wings is a profitable strategy and effective way of reducing BPR. However, we can expect to see Strangles reach 50% of credit slightly faster than Strangles with Wings.