Often we talk about how utilizing options can lead to a better risk/reward outcome than simply holding stock.
Today we are going to do an in-depth discussion of selling puts compared to buying and holding stock over a 45-day period.Study
- SPY, 2005 - present
- 45 days to expiration
- Selling 5∆, 16∆, 30∆, 50∆ puts
- Buying and holding 100 shares of SPY
- Managed at expiration and 21 days to expiration
- Compared to high volatility environments
- High IV is VIX over 18
We find that by managing puts early, we can achieve a better risk/reward profile than just holding stock, and by selling in higher IV, we have a better opportunity of making money.