A short straddle is a strategy comprised of selling an at the money put and an at the money call. Similar to a strangle, the short straddle benefits from a contraction in volatility and neutral price movement. At tastytrade, we manage straddles at 25% of the max profit and we manage strangles at 50% of their potential max profit. Since we use a duration-based management target to reduce volatility for strangles, should we also incorporate one for straddles?The Study:
- 45 Days to Expiraiton
- 2005 – Present
- 50 delta Straddles
- Comparing Varying DTE Management Strategies
The longer we hold the straddle the greater the average P/L however the lower the daily P/L. When we manage straddles at 14 days, we see increased cumulative performance and lower portfolio volatility.