Market Measures

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The Importance of Capital Allocation

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.

Selling premium is a long-term profitable strategy. Does this mean the more we trade, the greater the profits?

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In this study, the tastytrade Research Team tested the portfolio performance of 1 Standard Deviation SPY Strangles by allocating varying capitals (10%, 20%, 30%, 40% and 50% of a hyporthetical $1M account) . The study began in 2005 and all Strangles were held to expiration. The team then measured the long term P/L of the overall portfolio.

Using a series of visuals, the team presents the data on how each level of capital allocation faired while also noting how volatility and selloffs in 2008 and 2018 played a role in P/L. Watch this segment of Market Measures with Tom Sosnoff and Tony Battista and understand why capital allocation is so important.

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