What is more profitable selling a put or a strangle

Afbeeldingsresultaat voor options put

Selling a Put or a Strangle is excellent way to receive option premium. The market is rising year after year. Selling put options below the market would have a good idea. Most of the time the options expires worthless and you can keep the premium received.
You could sell a put option as well as selling a call option together. This is called a strangle. The strangle option strategy is a neutral options trading strategy that involves selling out of the money call and put option of a given an underlying security.
Instead of selling one put you can sell 2 options from which you receive option premium. If you sell the call option far enough out of the money the chance is very small that the option ends up in the money. What would have been more profitable selling a put or selling an straddle.  For this tasty trade conducted the following study:

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 short Naked Puts compare 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 30 Delta short 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

 

Conclusion

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.

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