Recent Returns of Basic Option Strategies

I’ve mentioned in several articles published on Medium that I’m engaged in proprietary trading based on a private survey of consumer conditions and expectations (see, for example, here, here or here). My chosen method of implementation is through long positions in listed index options. These offer two attractive features: absolutely controlled downside (you can’t lose more than the premium you pay and the associated brokerage and regulatory fees); and, high intrinisic leverage which facilitates an efficient use of capital.

To facilitate the risk management of this strategy I’ve been working with historic data acquired from the Cboe and, because the data is available to me, I thought it worthwhile to examine the performance of some alternative, but simple option strategies.

The four histograms shown above show the distribution of weekly profit and loss for (respectively): holding a long position in the market during the week; holding a long position in S&P Index Weekly PM Settled Call Options; holding a long position in S&P Index Weekly PM Settled Put Options; and holding both types of options. This latter strategy is called a “strangle” when the option strike prices differ but the expiration and underlying are the same. (The date range is determined by the history I acquired to support my backtests — options data is expensive.)