An earlier show explained how three factors influence our philosophy to manage winners and this segment provides some hard data for those still losing dollars by trying to pick up nickels. This is a follow up to the Options Jive segment on 9/18/2015, and should convince all but the most stubborn and those who don't understand basic math.
The segment began with a quick review of how theta acts on options that are at and out of the money. Later in the segment the effects of gamma and the change in risk-to-reward ratio were mentioned. These were all part of the Options Jive segment. The study was what was added here.
The study was conducted from 2005 to present consisting of 1012 observations. We sold 1 Standard Deviation Strangles in the SPX (16 delta on each leg). The trades were entered every three trading days and we used the options closest to 45 days to expiration (DTE). A table was displayed of the SPX 1 Standard Deviation Strangles being held to expiration, exiting 1 week before expiration and exiting 2 weeks before expiration. The table showed the average P/L, percentage of profitable trades and the average trade P/L per day.
The study also showed how not managing our winners negatively impacts our capital efficiency. A second table was displayed of both the last one week and last two weeks in SPX 1 Standard Deviation Strangles. The table showed the P/L improvement per trade and the percentage of winners that became losers.
Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the takeaways and other information you should know about managing and exiting positions before expiration.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.