Anyone watching tastylive for just a short time realizes that when we choose a Strangle as our strategy of premium selling that we advocate managing winners at 50% of max profit but when we use a Straddle that we try to manage at just 25% of max profit. Some have asked how a short Straddle strategy managing winners at 50% would perform.
Our study was conducted in the SPY (S&P 500 ETF) using data from 2005 to the present. Using the options expiration cycle closest to 45 days to expiration (DTE) we sold the at-the-money (ATM) Straddle (50 Delta Call and 50 Delta Put) and compared managing the trades at 25% of max profit if possible and if not held to expiration, 50% of max profit if possible and if not held to expiration or simply holding the trade to expiration.
A table displayed the results. The table included the average P/L and the success rate on Straddles managed at 25% of max profit, 50% of max profit and held to expiration. The table showed that managing at 25% of max profit yielded the best success rate but at a sacrifice of average P/L per trade. A second results table showed that managing at 25% produced the fewest average days in the trade and the highest average P/L per day. By managing at 25% of max profit, we ended up holding the trade for 30% less time which created a significantly higher P/L per day. A third results table showed that management of short Straddles at 25% leads to more consistent trade results with lower Standard Deviations (a measurement of risk).
For more information on Managing Short Straddles see:
Market Measures from June 19, 2015: "Straddles | Managing Winners and Losers"
Market Measures from May 12, 2016: "Straddles | Managing Earlier"
Market Measures from June 6, 2016: "Straddles: No Pain, No Gain"
Market Measures from August 9, 2016: "Managing Straddles - Performance"
Watch this segment of Options Jive with Tom Sosnoff and Tony Battista for the important takeaways and results of our study comparing managing short Straddles at 25% of max profit versus 50% of max profit.
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