---
title: 'Two Identical Losses: One Recovers 90% of the Time, the Other 20%'
source: 'https://youtube.com/watch?v=6-_YMh5DBWQ'
video_id: '6-_YMh5DBWQ'
date: 2026-08-07
duration_sec: 1028
channel: 'tastylive'
---

# Two Identical Losses: One Recovers 90% of the Time, the Other 20%

> Source: [Two Identical Losses: One Recovers 90% of the Time, the Other 20%](https://youtube.com/watch?v=6-_YMh5DBWQ)

## Summary

This video analyzes 10 years of SPY options data to determine whether the source of a 1x loss in a 15 DTE strangle affects the probability of recovery and tail risk. The study isolates losses caused by call breaches, put breaches, and IV pops, revealing stark differences in recovery rates and risk profiles.

### Key Points

- **Study Setup** [00:15] — Analyzing 15 DTE SPY strangles at 20 delta, isolating trades that hit a 1x loss prior to expiration. 10 years of data from January 2016 to present.
- **Loss Frequency** [00:27] — 1x losses occur about 27% of the time for these short-duration positions. Overall recovery rate to expiration is 41% when all management conditions are removed.
- **Loss Sources** [02:16] — Call breaches cause 47% of 1x losses, put breaches 44%, and IV pops 8.5%. Call and put breaches happen closer to expiration, while IV pops occur earlier in the trade.
- **Recovery by Source** [03:56] — Call breaches recover only 20% of the time, put breaches about 50%, and IV-related losses recover 90% of the time. This is due to time to recovery and market conditions.
- **Tail Risk Differences** [07:21] — Call breaches have lower tail risk despite low recovery. Put breaches and IV losses have higher tail risk, especially when they don't recover, due to downside moves.
- **IV Losses Turning into Put Breaches** [12:56] — 48% of IV-driven losses eventually turn into put breaches, explaining their similar tail risk profile. This is a key insight for management decisions.
- **Key Takeaways** [14:55] — Call breaches are most common but least likely to recover, with lower tail risk. Put breaches have higher recovery but double the tail risk. IV losses recover 90% but carry comparable tail risk when they don't.

### Conclusion

The source of a 1x loss in a strangle significantly impacts recovery odds and tail risk. Traders should consider giving IV-driven losses time to recover, but be cautious of put breaches, which carry higher tail risk.

## Transcript

>> Yeah. >> Let's do it. Okay. So, um here, uh just cuz I know people are trading, you know, like shorter duration positions, um I wanted to look at 15 DTE spy strangles um at 20 delta. So, we're looking, you
know, call and put side. We want to look at both sides to understand um when those strangles hit a 1x loss, we're going to be isolating those cases. Um does the source of the loss kind of like when we say matter, does it make a
difference in terms of like how you can expect that loss to kind of recover. Um they hit a 1x loss about 27% of the time. The shorter duration positions um you know, smaller what you know, loss thresholds compared to like 45 DTE
positions are more common. Um we looked at this study, you know, like last week, uh you know, when it hits a 1x loss, there's a 41% chance overall of that to expiration when we take all the other management conditions out of it. And so,
today what I wanted to look at is depending on whether the loss is a put breach, a strike breach, or an IV pop, how does that change the chance of this >> I like it. >> Yep.
>> Cool. Okay, let's get into it. So, here we're actually using 10 years of data. So, we're going back from January 2016 to present. We're looking at 20 delta 15 considered. Um we really just want to look at isolating the trades that have a
1x the initial credit loss at some point prior to expiration. Does the initial you know, make a difference in terms of like the overall statistics and the going to be estimating the initial source of the loss as either a call
breach, a put breach, or neither, which we're going to attribute to IV. Um so, then broken down by source, determine the probability of recovery, and then know, of the position as well as the CVAR. Um we're going to assume that we
take the trade off once the P&L flips positive if that does happen, and then like the aggregate statistics of that strategy. Make sense? >> Cool. Okay. So, this first slide uh that we're
going to be looking at is basically like what, you know, for strangles that do hit this 1x loss initially, what percentage of those are caused by, or neither, which we're going to attribute to IV. And what you can
>> [laughter] >> split pretty evenly between uh call breaches are a little bit more common. They're about 47% of the sources of those 1x losses. Um versus 44% for a put breach. Um and then IV actually happened
more often than I was expecting, about 8.5% of the time. Um and what you see here as well for each of these bars, it basically tells you like at what point relative to expiration did these losses
is that uh call breaches and put breaches happen much closer to expiration versus IV pops, you know, which like happened actually pretty the cases of the 1x losses that we looked at.
>> Yeah, that makes sense. I think uh when you have when you're when you put direction or you have an IV pop and it's it's an out-of-the-money 1x loss, that's going to happen much more commonly uh
you don't have the theta decay working against you or working for you in that sense to prevent the out-of-the-money loss. Uh but the breaches make all the losses. >> Right. That makes sense. With call
the last 10 years, we've had very bullish market conditions, right? So, like that that to me made sense. Um but yeah, those IV pops happen on average pretty quickly um in the trade with 11 days to go in a 15 DTE position versus
the breaches, which really happen at least, you know, on average from, you know, drifting prices over time. Um is kind of what you see more commonly, which is why they happen a bit closer to expiration compared to those IV pops.
that when you go to the next slide, is that when you look at the probability of recovery, um, you can see that the call breaches, as you'd kind of expect, very bullish market, very rarely recover. A little over 20% of the time, a 1x loss
from a call breach, uh, recovers about 20, yeah, 20% of the time. Put breach is a little bit closer to 50/50, um, where in about 50% of cases, if you know, the initial source of the loss is a put breach, then that recovers
that 1x loss about 50% of the time in the cases that we looked at. And then, the IV related 1x losses actually recovered about 90% of the time at some point prior to expiration. So, those IV, you know, pops that causes the that
caused those losses, uh, very early in, um, very early in, you know, the time actually recovered the overwhelming majority of the time in the cases we looked at. >> Yeah. Um, this is one of those cases,
uh, and I'm going to quote President Bush here. Uh, you breach my call once, shame [laughter] on me. You breach my call twice anymore cuz I'm moving [laughter] that whole thing up. I'm done
>> Yeah. >> And this is like in spy, in particular, bullish delta I want to pick up if I have a strangle. So, like I'm going to to a straddle and have like a an in-the-money straddle covered call type
feel. But, if I'm tested on the upside, I'm not under hedging and leaving that upside over time. Like I'm moving the whole thing up. And that's why these these year-long trades in MES and MNQ have worked out so well because into
those up moves, when we're when we're tested on the upside, we are moving the whole thing up so that our our short put is now tested, uh, versus the short call you get hit on the call side in a bullish market in a low VIX, like you're
>> Yeah. I mean, yeah, and and and I mean Q's exactly which we shift the whole exactly that. That's what's great about this piece. Um very cool. And this also kind of like ties back into sort of like some of the
week, which is that that having more time to recover plays a very big factor when it comes to managing a position. Um right, like that that time factor like and we're looking at 15 DTE
positions, right? Like that you know, but the IV pops happen pretty early on of what we're looking at here when we're specifically looking at 1X losses. Um by the way that we're measuring them have more time to recover, which plays a
when we go to the next slide, we can look at kind of like all the statistics >> Why Why did Why did you guys choose 15 DTE versus like any other time frame? >> I just picked 15 just because um like I I I was looking at OCC data like that
expiration like shorter expirations, right, are just becoming more popular on about the last time we talked about a similar study is that we use daily snapshots in these back tests. So I wanted to make sure that we had like you
know, a shorter duration but enough data points to really, you know, determine a bit more accurately the probability of some of these losses flipping. So that you know, 15 DTE kind of seemed like a sweet spot between shorter expirations
a more conclusive you know, decision, I guess. >> Um >> Got a lot of numbers up there. but these are some pretty cool numbers. So uh call breaches are
breaches are highly unlikely to recover. That's about 20% of the time they recovered at some point prior to expiration. Um but their tail risk was significantly lower than losses called by caused by put breaches or losses
caused by IV. Um sort of like by neither breach. Um so even though the put put breach losses are more likely to recover. Um they come with higher tail risk cuz in the cases when they don't, uh just because of the sheer like
know, downside moves in the market that can cause those call breaches, that that causes a bit more tail risk uh in the We're going to look at this, you know,
caused by IV that were kind of that didn't recover as well, even though most of them did, um a lot of the, you know, IV-related losses eventually turned into put breaches, which is why they have kind of a similar tail risk profile as
the put breach case. Um but 90% of recovery, and then you actually get into positive median P&Ls when you're looking at the put breach um or the IV-related loss situation or IV-caused loss situation. Um but that does come with
expect. >> I mean, I see this and I think, you makes a move to the downside and implied vol goes up, I shouldn't be too worried. Basically is what this tells me. >> Until you get a put breach. That's the
kind of like, right? If vol goes up and you haven't gotten a breach yet, high chance of recovery. Even when it does breach to the put side, just cuz put, you know, related losses are more put cause losses are more likely to recover,
cases. But in the cases where they don't, especially when you're not using any other management style like getting out, you know, halfway to expiration, using, you know, stop losses, any of that kind of stuff, um then those losses
can become quite large uh at least, you know, during the back test period that >> Yeah. I think it's I think it's really interesting cuz like you look at you look at the put breach and you also think to yourself like, well, what if
what if I rolled this like right when my put was breached, if I went from a 15-day cycle, I rolled it out in time to a 30- or 45-day and I moved it back out of the money and down. And then if you if you think about that transaction
trade, opening up a new trade and a further dated cycle into a sell-off, I would imagine that the research would show the once you move it further out of the money cuz now you're getting yourself
brand new trade in isolation where you're selling a put out of the money >> Mhm. >> So, to your point, there's other management styles that you can deliver here, but if you were to just
isolate this specific thing, you can still see that being breached on the put side and or having an IV breach resulting in that you can recover from. >> Recover from, yeah.
they're less worrisome if you are sized correctly. The CVAR is higher because to your point, the elevator down, escalator up, but if you're sized correctly and you and you can hold it and you can just roll it
better scenario than being breached on the call side, for sure. >> Mhm. I mean, it's interesting because I've I've told I said this before, I did little bit in our our
think the other time when we had that like a trade that we I talked about how when I first got to a to be like, "Don't don't ever be Don't ever be short a put." You know, like
because most of them had traded either in or just after the '87 crash. You so, like they were still fearful of that, right? >> And they were levered up. >> Yeah, I mean I mean, probably to some
degree. It's It Back then, maybe not as much, maybe to some degree, but just kind of still scared a lot of people, right? Whereas now, after we've had all these different types of moves, we know that you can potentially recover. And
taking delivery on a put, which, you know, is is not the scariest Um not to say you wouldn't take delivery on a Micron or Sandisk put right now cuz those are very expensive stocks, but you guys get what I'm saying.
For sure. And I think like yeah, the other piece of this is it's again like other piece of this is it's again like the time piece quite a bit. So just like with IV like because these happen so early in the trade,
you're balancing like is this the most efficient use of capital is like kind of really between like what should be I would say in my opinion whether to give a position more time to recover and keeping the capital tied up
in that versus redeploying it elsewhere. And when you have a loss from IV IV just giving it a little bit of time to recover before especially they turn into a put breach potentially. Um can can
mechanically it seems like that's typically what somebody would do. balancing act of like is this the best use of money right now my money cuz like could I deploy it elsewhere? Um by the time it really becomes like a you know a
At that point there's so little time left in the trade and IV is you know certainly popped as well in especially the put breach cases. Like rolling like you like you said like we're
>> 100% >> Cool. So and then in this next table this kind of like this kind of like shows what I'm talking about in a little bit more numeric detail. But basically when we
look at the IV driven losses like the IV you know pops that basically caused that you know pops that basically caused that initial 1x loss, 48% of them eventually turned into put breaches and that's really where that CVar kind of comes in
and why the CVar for you know like leaving those on and leaving them to that's really where that tail risk comes in. We can see that very rarely do they turn into call breaches and you know about half of them
ultimately sort of like recover and those don't carry the same kind of tail breach. So, the kind of like middle ground approach here would be like if IV pops, especially early in the trade, and it causes a 1x loss, looking at these 20
delta 15 DTE contracts, then giving it a little bit of position position, especially before it turns into a put breach, is really that middle ground approach, um at least according
to this study. >> Yeah. And that makes all of this makes perfect sense that uh an IV expansion would come from a downside move in SPY. So, here it would be crazy if you saw the opposite where like IV expansions
into call breaches, but not if you're in like a tech stock like Micron or actually be the opposite, I would imagine, where if you're if you saw an IV an IV increase loss, it was probably to the upside versus the downside, cuz
there are different dynamics in different markets. But, in SPY, it's IV increase. >> Yeah. And then sometimes like the IV down, and it just stays neither, like it doesn't turn into a breach position. And
in this, you know, one specific study, was uh positive. So, uh not resulting in losses, at least looking at those worst 5% of cases. So, um it's really a like capital deployment, what's the most efficient use, as well as like the risk
of a single position, and how much, you know, capital you're willing to leave exposed potentially, especially with undefined risk positions. Um so, yeah, >> Cool. >> Incredible stuff.
>> Uh for the takeaways, just to kind of go through these, um so, for the 15 DTE SPY strangles tested, 1x losses occurred about 27% of the time at some point prior to expiration. They recovered 41% of the time overall, but the source of
the 1x loss, um we saw made a statistical difference in terms of the chances of recovery and the tail risks. So, losses from call breaches were the most common and the least likely to recover, but carried significantly less
tail risk than losses caused by put breaches or IV. Um losses from put but carried roughly twice the tail risk of losses caused from call breaches. Um IV initially, you know, caused 8.5% of the 1X losses that we observed but
recovered 90% of the time. However, those, you know, small number of cases you know, created comparable tail risk to sort of the losses from put breaches. And that's really because um the losses that started out from the IV pops turned
more extreme cases. So, you're always going to kind of like carry tail risk and just like P&L volatility overall by leaving a position on, especially after it's incurred a loss. But looking at those IV cases, the kind
waiting to see if it turns into, especially a put breach is kind of the one to look out for in spy, um or, you know, give it a little time to recover. >> Yeah, I think this is super important data and it it's it needs to be shown
uh it it helps it helps you decide the next move, really. Like when you have the put breach and IV increase and you see the recovery probabilities from that, uh it's just a different different style of management, I would say.
>> Yeah. I'd say so, too. And always important to that has like earnings, for example, losses caused by binary events or FOMC Here, we're kind of using our kind of gold standard of like a, you know, super
liquid, um you know, well-diversified market index. So, always important to note you know, the lens that we approached the study from. Well, Julia, appreciate you. >> Yep.
>> Mhm. >> Thank you guys. >> Thank you guys. >> Love it.