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 thehas on the whole trade relative to reducing risk and 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 (1 standard deviation) separately to see if one was more profitable
- Compared results to when 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. For the full set of results, watch the video above.