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The Skinny on Options: Abstract Applications

The Asymmetric Price of Risk

The Skinny on Options: Abstract Applications

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

As tastytraders, we're always looking to manage risk and mitigate its effect on our positions. The volatility skew in the option chain shows us that risk is not symmetric between rising prices and falling prices in equity index products. As a result, we're typically able to push the Short Put strike on our Strangles pretty far out-of-the-money, to combat the high velocity moves that typically occur to the downside.

But secondarily, as we see this morning, this also equates to being closer to the stock price with our Short Call strike - something that has been shown to lead to more tests to the upside on our Strangles.

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