Market Measures - February 16, 2021 - Estimating Strangle Buying Power

published 1 week ago by tastytrade, Inc.

The formula for the buying power reduction (BPR) of a strangle is somewhat hairy and it requires an estimate for the call/put strikes. However, BPR also has relationships with the price of the underlying and IV. Can we use our understanding of those relationships to create a simpler estimate for BPR? Let’s use 16Δ SPY strangles to answer this question.

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