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Market Measures

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Taking Lottery Chances

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Sometimes we want to take a shot in hopes of a large return. Sure it may be fun to imagine winning big on a trade like this, but how have these trade performed over the last 14 years?

Study
  • SPY, 45 DTE
  • 2005 - present
  • Bought 5 delta calls
  • Bought 5 delta puts
  • Recorded average cost per dollar invested (edge to premium seller)
  • Recorded odds of receiving at least a 2x, 5x, 10x return on option

We find that in any environment, both long shot puts and calls lost money to the tune of 30-60¢ per dollar invested. With a win rate of less than 5%, taking these long shot bets can be more costly than you first think.

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