At tastylive, one of our core trading strategies is managing winners at 50% of max profit, and doing so well outperforms holding trades to expiration. Closing positions a few weeks before expiration also provides some strategic advantages. Is there a way to combine these approaches and have even better results?
Our research team conducted the first study in SPY (S&P 500 ETF) from 2005 to present. We sold one Standard Deviation Strangles using options closest to 45 days to expiration (DTE) . We then compared strategies of managing the position at 50% of max profit or closing them 1-3 weeks prior to expiration, and expiration itself. A table showed the result for each time length and managing at 50% for average P/L, win ratio, duration and annualized P/L on each strategy. The table showed that managing at 50% outperformed in terms of annualized P/L and probability of profit (POP).
Our second study was identical to the first study. This time we either got out at expiration or managed the trade at 50% of max profit or with 1-3 weeks until expiration, whichever happened first. The results showed that combining the strategies of managing winners at 50% on top of managing earlier does improve performance.
For more on managing winners see:
Market Measures on May 14th, 2015: “Straddles | Managing Winners”
Market Measures on June 19th 2015: “Straddles | Managing Winners and Losers”
Market Measures on September 1st, 2015: “Short Puts | Managing Winners & Losers”
Market Measures on December 4th, 2015: “Managing Winners | Varying Profit Targets”
Market Measures on January 26th, 2016: “Managing Winners | Exiting Based on Duration”
Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the valuable takeaways and to learn how to manage winning trades early.
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.