1. SPY Short Straddle backed up with the Smile Strategy produces Positive Expectancy
By Ken Hodor
4/25/12

2. Presentation Overview
Basic premise and history
6-year back-tested results
Analyze Drawdown and expectancy
My past showed all sellers of options have negative expectancy
Deal with “black swan” events
Conclusion

3. Suggestion
Selling Monthly At The Money (ATM) Straddles has a positive expectancy you make money

4. What about Various Strikes?

5. What about since Oct?

6. SPY Short Strangle 6 Strikes above the current price
Sell monthlys one month out
Results for past 6 years

7. Short Straddle

11. SPY Short Call Win = 90.3% Average Win = 0.99 Average Loss = 1.46
Expectancy = 0.52
Maximum Drawdown = 4.17
Cumulative Gain =54.38

12. SPY Short Put Win = 69.4% Average Win = 4.11 Average Loss = 6.91
Expectancy = 0.11
Maximum Drawdown = (Huge!)
Cumulative Gain = 53.56

13. SPY Short Strangle Win = 72.2% Average Win = 4.54 Average Loss = 6.40
Expectancy = 0.23
Maximum DrawDown = 39.92
Cumulative Gain =

14. So how to mitigate DrawDown?
Stop Loss
Day-Trade 5+ times more weekly calls and puts than Straddles
“Smile Strategy”
30 Delta or higher

15. Day-Trade Weekly Puts and Calls

16. Short Strangle + Trading Weeklys

17. Conclusion SPY Short Strangle good for income
Much better than Money Market
Day Trade Weeklys to mitigate or even eliminate drawdown