Something that is unique to tastylive is the concept of managing winners. Our studies have consistently shown that managing winners results in greater profits overall. Are there other reasons why traders should manage winners?
A graph of the Theta (time decay) of an in-the-money (ITM), at-the-money (ATM) and out-of-the-money (OTM) short Put during the last few months before expiration was displayed. It showed that holding these short options benefits much less in the last several days before expiration. Additionally, it results in a lower Return On Capital (ROC) during that time period. A bar graph of the results from selling the 1 Standard Deviation Strangles showed decreasing P/L during the last several days.
A table comparing various Short Strangles in the SPY (trading at $215.05) with 2 days to expiration (DTE) and 37 DTE was displayed. The table included the strike widths, Gamma and profit left on both. The table showed that with 2 days left there was almost no profit left to gain in the ATM Strangles and a tremendous amount of Gamma risk. Tom and Tony noted "It doesn't make any sense, you're playing for pennies with a ridiculous amount of exposure". They also reminded us that there is always the choice of rolling the trade out in time which increases duration, reduces Gamma risk and brings in more credit.
For more information on Gamma and Managing Winners see:
Market Measures from January 26th, 2016: "Managing Winners | Exiting Based on Duration"
Options Jive from March 1st, 2016: “Options Risks | Changing Probabilities (Gamma)”
Market Measures from April 13th, 2016: “Take Off Winners, Before They Become Losers”
Options Jive from April 18th, 2016: “Delta After Market Moves | Compensating For Gamma”
Watch this segment of Options Jive with Tom Sosnoff and Tony Battista for the valuable takeaways and a better understanding of why we either manage our winners or roll our positions out in time instead of riding them into 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.