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Options Jive

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Why Neutral Strategies Rule

Options Jive

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

The ultimate goal of investing is to find strategies that achieve both higher return and lower risk. Today’s Options Jive explore the risk to reward comparison of neutral strategies versus directional ones. An example is a straddle - it’s comprised of selling an ATM put and an ATM call. It’s reasonable to assume that the opposing delta of the put and call would reduce the risk of the straddle.

How has this assumption played out historically? Do neutral strategies noticeably outperform on a risk-adjusted basis?

The Study

SPY, 2005-Present Sold an ATM Put, ATM Call, and a Straddle, closest to 45 DTE, managed winners. Compared average returns and standard deviation.

The Results

Neutral strategies performed better in all environments, having historically resulted in a lower standard deviation of returns and better average returns. View the video for more detailed results.

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