Market Measures

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Is Delta Neutral Worth It?

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.

When we break down the Strangle to its component parts, we get a put and a call option. We have done copious amounts of research showing the positive effect adding both parts of the Strangle has on the whole trade relative to reducing risk and standard deviation of profits and losses. However, we ask whether or not both halves of the trade are worth it in terms of potential profits.

We did a study!

  • Compared 16 delta (1 standard deviation) put and call separately to see if one was more profitable
  • Compared results to when IV Rank was greater than 50%
  • S&P 500 ETF (SPY)
  • 2005 to present

Our results showed that there is merit to putting on both sides of the trade, even if we think stocks might bounce or rally after a selloff and simultaneous rise in Implied Volatility. For the full set of results, watch the video above.