At close 3/13/20 SPY was at 270.2, by close 3/16 it dropped to 239.41 ~ 8.8% drop... I'm looking at how to capitalize on these big swings with options.

I'm backtesting option strategies and plotted the gains for various PUTS by strike from 3/13 close to 3/16 close. I see the 'peak' gain of 600% is at a strike price of 185 so over 30% lower than ATM on 3/13.

Question is how could I figure out ahead of time what the optimal strike price to buy a PUT at is that maximizes my gain if there is a ~8-10% drop? What drives the shape of the curve below?

Curve of PUT price on 3/16 / PUT price on 3/11 by strike...

enter image description here


1 Answer 1


You need an implied volatility assumption in addition to the price drop assumption to compute that.

With a higher implied volatility increase the "profitability peak" you have will gravitate towards lower strikes. Vega is a more important pnl factor in that situation than pure delta, it's not surprising that an option which is still OOM would be more profitable than an option that became ITM.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.