What is more profitable selling a put or a strangle
Study Put versus Straddle
Short Naked Puts benefit in a strong bull market. However, we know that markets don’t only go one direction all the time. How do these shortcompare in a portfolio long-term relative to a Strangle?
- Study 2005-2017, sold options around 45 days to expiration
- $1 million account with only 25% capital invested
- compare: 30 delta puts with 1 SD (16 delta) strangles
While the statistics for average performance in the past decade favors the 30short put, the long-term portfolio performance tells a different story. We also compared the volatility of these two portfolios, looking at average daily standard deviation at expiration and also when managed as a winner.
Tom and Tony learned that a strangle was more profitable than selling a naked put. To improve the study they looked what the effect would be if they closed the position when it reaches 50% of the maximum profit. Below we show you the results.
Watch the full episode http://ontt.tv/2i900N8
We discussed to sell a naked put against a straddle positions. We discovered that:
- The 1 SD strangle portfolio yielded greater profit than the short 30 delta puts in portfolio performance
- The 1 SD strangles had much lower portfolio volatility than the short 30 delta puts, no matter what management strategy.
- A delta neutral strategy has provided better protection in market turmoil than naked short puts have.