What is more profitable selling a put or a strangle
Study Selling Put versus Strangle
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. Selling two positions will provide you with much more more option premium. We also 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.
You need to resrve much capital (BPR) if you are Selling Puts or Strangles on expensive underlyings. You can reduce the buying power reduction by buying wings and creating Iron Condors.