Market Measures

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Strangles: Do Wings Affect Performance?

Market Measures

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 Strangles
  • Sold 16 Delta Strangles and bought: 2, 5, 10 Delta Wings
  • Managed at 50%; IV Rank > 20%
RESULTS:

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.

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