Market Measures

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Two SD and Beyond

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.

This segment of Market Measures takes a look at the risk/reward trade-off between 2 standard deviation strangles and 1 standard deviation strangles.

We know that 2 standard deviation strangles have a higher probability of profit than 1 standard deviation strangles. Yet, our study shows us that the 1 standard deviation strangle outperforms the 2 standard deviation strangle in terms of risk adjusted returns and return on capital.

Even though 2 standard deviation strangles seem safer due to a higher probability of profit, 1 standard deviation strangles have a much higher risk-adjusted return and return on capital.

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