Straddles and Strangles are similar trades with different deltas at entry. Despite their similarity, they have different risk profiles. This research investigates how their performance and risk change over time.
On average, Straddles produce greater P/L but with a lower success rate. The Straddle generates its higher returns from the greater theta value when compared to Strangles. However, the Straddle has a much wider range of deltas resulting in greater directional risk and a lower Probability of Success. Knowing these risks and return characteristics allows us to better structure a balanced portfolio of theta and delta exposure.