Dual Edge Research publishes two powerful newsletters that work great individually — and even better together. The Bull Strangle Newsletter focuses on stocks and options, combining stock ownership with premium-selling strategies to generate consistent income and market-beating returns. The Smart Spreads Newsletter specializes in seasonal commodity futures spreads, offering a diversified approach with low correlation to equities. Together, they deliver a complete investment perspective — one focused on income, the other on diversification — all under one simple subscription.
Introduction
One of the more interesting developments in the Bull Strangle strategy over the past year has been a consistent performance gap between the small and large portfolios. Both portfolios follow the same rules. Both draw from the same watch list. Both are constructed using the same stock ownership and dual-option selling framework. The key structural difference is scale and scope. The small portfolio places two trades per week, focused on stocks priced up to $50, while the large portfolio places five trades per week, extending its universe to stocks priced up to $110.
Yet despite the broader reach and greater diversification, the small portfolio has outperformed. At first glance, that shouldn’t happen. The larger portfolio has more capital, more flexibility, and broader participation. If anything, it should have the advantage. But the data told a different story—and understanding why led to a much more important discovery.
Both Portfolios Were Working — But Not for the Same Reason
Before digging into the difference, it’s important to frame what was working. Across both portfolios, performance was strong. Returns were roughly double that of the S&P 500 over the same period. The outperformance was driven primarily by the stock and put components, which consistently contributed to gains. The call component, however, told a different story. Rather than enhancing returns, it was frequently capping stock gains too aggressively, offsetting a portion of the upside generated by the underlying positions.
That distinction is critical. The Bull Strangle is often thought of as an “income strategy,” but the data reinforces something more precise:
- The strategy is fundamentally an equity participation strategy supported by put income, with call placement acting as a constraint on upside.
And when that constraint is too tight, the call overlay can quietly reduce overall performance rather than enhance it.
The Unexpected Difference: Options Performance
When the portfolios were broken down into their components, a clear divergence appeared:
- Small Portfolio
→ Positive net profit from options (puts + calls) - Large Portfolio
→ Negative net profit from options
This was surprising. The structure was identical. The trades came from the same watch list. The only difference was scale. So why would one portfolio generate positive option income while the other consistently gave some of it back?
The Root Cause: Call Strike Placement
The answer turned out to be remarkably simple—and surprisingly impactful. It came down to how close the call strikes were to the stock price. Under the existing rules, calls were sold at approximately 1.5% above the stock price, rounded up to the nearest available strike. That sounds precise, but in practice, the outcome is heavily influenced by strike price increments, which vary by stock.
Lower-priced stocks—more common in the small portfolio—often trade in $0.50 increments, while higher-priced stocks—more prevalent in the large portfolio—more frequently use $1.00 increments. When rounding up, this difference in increments naturally pushes the final strike further away from the stock price in the small account and closer to the stock price in the large account.
As a result, the same rule produced meaningfully different outcomes for the call strikes:
- Large Portfolio: ~3.01% above the stock price
- Small Portfolio: ~3.40% above the stock price
A difference of less than half a percent. That doesn’t sound meaningful. But in options, it is.
The Test: Raising the Call Strike
To isolate the effect, a simple test was run: stock and put performance were held constant while the call strike was increased by one increment. The results were immediate—and revealing. In the large portfolio, call losses dropped significantly. More importantly, the combined put and call result shifted from a net drag to a net contributor, meaning the option component moved from reducing returns to enhancing them. In the small portfolio, the change was even more pronounced. The call leg moved from negative to positive, and both the call and the put were now contributing to overall returns.
Nothing about the underlying trades changed. Stock performance remained the same. Performance remained the same. Only the call strike was adjusted. Yet that single change was enough to turn the option component from a drag on performance into a meaningful source of return.
The Key Insight and a Better Approach to Call Placement
This leads to a much clearer understanding of the role of call options in the strategy. The goal is not to maximize premium—it is to avoid giving up more upside than the premium is worth. When calls are sold too close to the stock, a premium is collected, but larger stock gains are repeatedly capped. Over time, the cost of that lost upside can exceed the income received.
The takeaway is not that calls should be avoided, but that they must be placed with sufficient distance from the stock price to avoid the nonlinear penalty that occurs near the strike. A more effective approach is to target a percentage of the distance from the stock price, then round to the nearest available strike increment. This ensures that the final strike—after rounding—is positioned correctly and aligned with the intended level of participation in the stock’s upside.
Why This Matters
This discovery doesn’t change the structure of the Bull Strangle. It refines it. It reinforces three key principles:
- Stock selection drives the majority of returns
- Options modify the distribution—not the core direction
- Call placement determines whether options enhance or reduce performance
Final Thought
Both portfolios were working. Both were outperforming the market. But one was doing so more efficiently—and the difference came down to how the call strike was positioned. This is exactly the type of refinement that continues to shape the Bull Strangle strategy. Small structural adjustments, grounded in data, can materially improve results over time. These insights, along with the weekly watch list and trade selection process, are shared in the Bull Strangle Newsletter, which focuses on building a consistent, repeatable framework for stock-backed income.
To learn how this approach is applied in a structured, repeatable way, The Bull Strangle Strategy provides a complete framework for combining stock ownership with option income.
More Information
Now you can get two powerful newsletters for one simple price!
- For stocks and options, the Bull Strangle Newsletter shows you how to combine stock ownership with dual option selling — a disciplined strategy that has consistently outperformed the S&P 500.
- For commodity futures, the Smart Spreads Newsletter focuses on seasonal commodity spreads — a proven, low-correlation approach that thrives in all types of markets.
Each newsletter is designed to deliver consistent income on its own — but when used together, they create a complete, diversified trading approach that works in any market environment.
Visit BullStrangle.com to subscribe for just $1 for the first month.
For a video overview of the Bull Strangle Newsletter
For a video overview of the Smart Spreads Newsletter
Darren Carlat
Dual Edge Research
(214) 636-3133
DualEdgeResearch@gamil.com
Disclaimer
This information is for informational purposes only and should not be considered as investment advice. Past performance is not indicative of future results, and all investments carry inherent risk. Consult with a financial advisor before making any investment decisions.
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