Do you use stops? How is defined risk coming out worse than unlimited? Also what about Reduction in buying power? Garbage Wings lets me put on 4 instead of 1 trade/s in most underlyings (gw=5% from ATM vs naked 20% underlying+risk of getting blown to pieces when IV explodes).
Thanks. Over time protection costs money so I am not surprised on average, in the long run, wings cost money. But isn't the "expected move" already priced in? @.sigma, I need your help. Power law distribution, fundamental distribution... ?
I use rules based on time not price action. Wings lose more than sans wings because when selling, the BRP is many times lower than the naked margin, so % loss is higher. Guess which stack of returns is with and without wings? Average is bolded at the bottom... Which do you prefer?
The expected move can be calculated a lot of different ways, depending on confidence, HV or IV, and a lot of assumptions. I include variables that aren't necessarily directly relevant or derived from the options, good for some stuff, not really that good for other stuff
are you comparing 1 trade naked vs 1 trade with wings or ROI naked trades 1 vs how many trades you could put on with wings, ROI will deviated drastically. In the real world your ROI should almost always be higher with wings unless you are an Institution/billionaire and your trades move the market
These are the same trades in every way, except one has wings $2.00 out on both sides and the other doesn't. thazzit
Maybe if the wings are wide enough to enclose historical and robustness test losses (Still shit bc of black swan events imo). From a ROI perspective making 4x the premium vs making it 1x with e.g. 60k BPR makes a big difference. The only situation where this doesn't matter is if you have unlimited buying power and there are no Investment Opportunities that are greater the IRR of premium/naked Option BPR