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