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.