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.
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.