Options Strategy Labs: 2007

"Employment report strangle," (Options Trader, July 2005) analyzed whether an option-selling strategy such as a short strangle could profit from these predictable events. The goal was to sell premium after the jobs report was released with the expectation implied volatility (IV) would drop. The test showed placing short strangles in 10-year T-note futures after the release of the jobs reports was profitable from January 2001 to May 2005. Short strangles can be affected by volatility, and the Treasury market became decidedly less volatile as option IV declined in the past two years. Figure 1 compares implied and statistical volatility in the 10-year T-note futures since September 2000. The figure’s red bar marks the original test’s end and shows volatility has continued to fall since May 2005. Because volatility has changed, it is worth retesting this strategy through December 2006 to see if it has remained profitable.