i was doing some homework for something else and wanted to drop a few things here that may be useful to newer traders.
a lot of times, someone may sell a straddle or strangle (or iron condor / fly) thinking they're trading vol risk premia or vol in general. in a way they definitely are but it's really noisy.
the graphs below show the impact of delta hedging frequency on returns, and path.
main thing to note here is how your maximum delta changes (which indicates your directional tilt) as spot moves around over time. theses are all starting with a 30DTE target (using SPY and Monte Carlo trained on SPY data).
this stems from both delta and gamma changing due to changes in spot and passage of time (charm, etc). the important part here is if you're selling something attempting to isolate volatility, holding a position with 90+ deltas is super directional relative. aka you're getting a lot of input from an effect you dont necessarily want.
https://preview.redd.it/o0iw3j7sd2hh1.png?width=1267&format=png&auto=webp&s=ad16557fa09950805e9406940ba8508551917e0f
to isolate purely, we'd hedge continuously - which isn't realistic. we're met with a choice and fortunately, there's a handy rule we can use to find the efficient frontier (second graph below)
https://preview.redd.it/x5yfmmpqd2hh1.png?width=1300&format=png&auto=webp&s=a406d091c357a2b8d15e7d0c9342ac1fd1bae8d2
the scaling law is really important and something i legit actively use (really easy to build a formula in google sheets, i have it in my research and analysis tool now to automate easier).
you'll also find some differences based on the DTE you're trading and how noisy you're comfortable with
https://preview.redd.it/55hlznoee2hh1.png?width=1314&format=png&auto=webp&s=6ac7df7e88bd5a36c0e34937f075fb1f416796b7
in general, we on the retail side cannot purely isolate vol - thats done via variance swaps. next level is seeing what return profile you're comfortable with, in general, i find if selling 20-40DTE vol, adjusting daily on average but im a full time trader, so i base it moreso on bands vs time. when i worked full time, would use an EOD window bc i didn't have access at other times.
*see below for prior research posts:*
*-* [*https://www.reddit.com/r/options/comments/1v403qd/earnings\_season\_progress\_report\_mkt\_research/*](https://www.reddit.com/r/options/comments/1v403qd/earnings_season_progress_report_mkt_research/)
*-* [*https://www.reddit.com/r/options/comments/1v0h9m8/0dte\_spx\_greek\_behavior\_mkt\_research\_snapshot\_pt6/*](https://www.reddit.com/r/options/comments/1v0h9m8/0dte_spx_greek_behavior_mkt_research_snapshot_pt6/)
\- [https://www.reddit.com/r/options/comments/1uoh494/theta\_decay\_measured\_on\_19\_years\_of\_real\_spy/](https://www.reddit.com/r/options/comments/1uoh494/theta_decay_measured_on_19_years_of_real_spy/)
\- [https://www.reddit.com/r/options/comments/1u4dgcz/0dte\_spx\_iron\_condor\_study](https://www.reddit.com/r/options/comments/1u4dgcz/0dte_spx_iron_condor_study)
\- [https://www.reddit.com/r/options/comments/1u63m6i/spx\_iron\_fly\_research\_results/](https://www.reddit.com/r/options/comments/1u63m6i/spx_iron_fly_research_results/)
\- [https://www.reddit.com/r/options/comments/1u63zqw/qqq\_short\_downside\_puts\_research/](https://www.reddit.com/r/options/comments/1u63zqw/qqq_short_downside_puts_research/)
\- [https://www.reddit.com/r/options/comments/1u6s42a/research\_offer\_pt4/](https://www.reddit.com/r/options/comments/1u6s42a/research_offer_pt4/)