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The 84% Win Rate Strangle That Still Lost Money This Year
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ticker lesson
Breakdown
0:00lesson
Hidden tail risk of low delta strangles
- Low delta strangles have high probability of profit
- Hidden risks include tail events and large losses
- Position sizing is critical for managing risk
- High delta on face can be misleading
- Average outcomes vs. realistic trading
1:30lesson
Win rate vs. tail risk in strangles
- Win rate increases with lower delta strangles
- Worst-case single loss increases with lower delta
- Normalized losses can be 7.5x initial credit
- High win rate doesn't equate to lower risk
- Tail events can wipe out gains
3:12lesson
Delta impact on tail risk and credit
- Worst loss and C bar increase as delta falls
- Smaller credits lead to higher loss multiples
- Picking up pennies in front of a steamroller
- Tail risk stacks with more contracts
- Size can kill you in extreme scenarios
4:51lesson
Historical performance and tail events
- Low delta trades can look profitable historically
- Single meltup can turn 84% win rate into a loss
- Tail events can wipe out gains
- Small profits can be offset by rare losses
- Sustainability depends on managing tail risk
6:36lesson
Credit collection and tail risk trade-offs
- Collecting $1,000 in credit requires more contracts
- Tail risk stacks with more contracts
- Super far out of the money strangles increase risk
- More contracts mean higher potential losses
- Size can kill you in extreme scenarios
8:13lesson
Total notional risk and portfolio robustness
- Need to be cognizant of total notional risk
- 7x contract exposure can be dangerous
- 20-30% market sell-off can blow up a strategy
- Robust portfolio needed to handle tail losses
- High win rate doesn't guarantee safety
9:50lesson
Final takeaways on strangle risk
- Higher win rate doesn't mean lower risk
- Worst-case losses can be 7.5x initial credit
- Tail events can erase a year's gains
- Stacking contracts increases risk exposure
- Size can kill you in extreme scenarios
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