Market Measures - September 28, 2020 - Defining Option Risk


Sep 28 2020 11 mins   10
We often use P/L standard deviation to quantify the risk of an option strategy, but there are subtleties to representing risk with this statistic. Join Tom and Tony as they compare the P/L distribution of early-managed 20Δ short SPY strangles to a normal distribution to understand why. Since short option P/L distributions are negatively skewed, P/L standard deviation underestimates the probability of small upside events and large negative tail events.