The goal of our paper is to analyze the full return characteristics of option strangles and to develop a set of models to help investors avoid getting steam-rolled. Our results show that selling SPY strangles are generally profitable across all time frames and widths even during the critical crisis year of 2008. Our model posted the largest average returns of 18.28% in 2009 followed by 16.85% in 2011. However, the payoff profile of a short option strangle exposes the contract seller to a potential for unlimited losses. Our evidence on maximum drawdowns indicates that losses on some positions can be the equivalent of the profits gained on approximately forty prior positions. This payoff profile has given rise to the metaphor of selling option contracts as the equivalent of "picking up nickels in front of a steam roller." We use information that is available at the time a position is under consideration to predict the profitability of strangles and to avoid strangle positions with potentially large losses.
Theories of partisan redistricting postulate unitary actors maximizing their party’s expected seat share. Yet, the partition of a fixed supply of friendly voters necessarily implies a tragedy of the commons. We recast partisan redistricting as a bargaining game among the sitting representatives of the party controlling the map. The status quo is the threat point, explaining why changes are frequently minor. This bargaining framework implies that highly competitive districts will receive more help from redistricting if they are already represented by the party in charge. Employing a regression discontinuity design with precinct-level data, we find support for this prediction. (JEL C78, D72)
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