We Tested Bullish vs Neutral vs Bearish Strangles. The 30 Delta Put Won.

Key Concepts

• Bullish Strangle: An options strategy consisting of selling a put and a call with different deltas (specifically a 30-delta put and a 16-delta call) to create positive delta exposure.
• Put Skew: The market phenomenon where puts command higher premiums than calls at the same distance from the money, often necessitating adjustments to strike selection.
• Delta: A measure of an option's sensitivity to changes in the price of the underlying asset.
• Expected Move: The range within which the market is statistically expected to trade over a specific timeframe.
• Return on Capital (ROC): A metric used to evaluate the efficiency of an investment relative to the capital required to open the position.
• Jade Lizard: An alternative strategy involving a naked put and a credit call spread, used to mitigate upside risk while collecting premium.

---

1. Comparison of Strategy Performance

The discussion centers on comparing three primary approaches: the 16-delta neutral strangle, the 30-delta naked put, and the bullish strangle (30-delta put / 16-delta call).

• Premium Collection: 30-delta puts consistently generate higher premiums than 16-delta strangles due to put skew.
• Bullish Strangle Performance: This strategy offers better returns than neutral strangles in sustained uptrends because of its positive delta bias. While it carries more volatility and downside risk than a neutral strangle, the "largest loss" difference is often marginal when compared to the benefits of the higher premium collected.
• Bearish Strangle Performance: The inverse (16-delta put / 30-delta call) was found to underperform both the neutral and bullish alternatives, showing lower returns and failing to justify the risk, making it suitable only for those with a strong bearish conviction.

2. Strategic Frameworks and Methodology

• Strike Selection: The presenters emphasize that when volatility is high, traders should move strikes closer to the money (e.g., moving from 16-delta to 30-delta) to capture more premium.
• The "Bullish Strangle" Trade-off: The strategy acts as a middle ground between a naked put and a neutral strangle. It provides the "oomph" of the put side while offering some downside protection and reduced volatility compared to a naked put.
• Risk Management in Bull Markets: Given recent market behavior where equities and ETFs have frequently breached expected moves to the upside, the presenters express caution regarding naked calls. They suggest that if one is concerned about upside risk, they might prefer a Jade Lizard or simply selling the naked put rather than a strangle, to avoid being "burned" by aggressive upward momentum.

3. Key Arguments and Perspectives

• The Case for the Naked Put: The presenters lean toward the 30-delta naked put as a preferred strategy, noting that in the current market environment, the upside risk associated with selling calls (even at 16-delta) has become a significant liability.
• Volatility and Adjustments: The research team cited in the video suggests that the effectiveness of these strategies is highly dependent on market conditions. When volatility is elevated, the premium advantage of the 30-delta put becomes more pronounced.
• Market Reality: The speakers highlight that standard 45-day iron condors and strangles have been frequently challenged by "insane" upside moves in both individual stocks (e.g., Dell) and ETFs (e.g., SPY).

4. Notable Quotes

• "The bullish strangle sits strategically between selling naked puts and neutral strangles. We get solid returns from the put side while having much better downside protection and less overall volatility than naked puts alone."
• "When vol's higher, definitely go from that 16 delta to the 30 delta."

5. Synthesis and Conclusion

The video concludes that while bullish strangles are mathematically superior to neutral strangles in terms of return on capital during uptrends, the choice of strategy depends heavily on the trader's risk tolerance regarding upside exposure.

Main Takeaways:

1. Bullish strangles provide higher returns than neutral strangles but come with increased volatility.
2. Put skew makes the 30-delta put a powerful tool for premium collection, often outperforming the combined premium of a 16/16 strangle.
3. Upside risk is a major concern in the current market; traders should consider whether the extra credit from a 16-delta call is worth the risk of being breached, or if a naked put/Jade Lizard is a more prudent approach.
4. Adaptability: Traders should adjust their delta targets based on current volatility levels to optimize premium collection.