tastytrade usually prefers selling strangles over straddles for a variety of reasons, and today we are going to focus on capital efficiency a.k.a. return on capital.
Return on capital is measured by the credit divided by the buying power reduction. So which strangle has had the greatest return on capital over time?Study:
- 45 days to expiration
- Sold the 10 - 50 delta strangles
- Managed at expiration
- Recorded average return on capital
We find that although the 50 delta strangle (straddle) has the greatest potential return on capital (credit received ÷ buying power), the actual return on capital (profit/loss ÷ buying power) is greatest for the 30 delta strangle.