Another tastytrade pillar that challenges the status quo is to take trade profits and give losing trades duration.
Managing winners tends to go against financial tradition, however, tastytrade argues that long term profitability is higher because you reduce your risk of losing. But how is managing winners defined?
Taking profits depends on a variety of factors including Days to Expiration as well as the percentage of maximum profit. Typically, tastytrade looks to manage winners at 25-50% of maximum profit, though that can change depending on how quickly the trade works for (or against) us.
Additionally, when defending positions, traders should consider account size, days to expiration, implied volatility and whether or not their assumption has changed on the underlying. Why not simply close the trade out? Because duration allows us more time to be right and for the underlying to move in our favor (or for volatility to contract), thereby lessening losses or giving us a profitable trade.
Still, staying mechanical is easier said than done, so Dylan Ratigan recruits Nick, Pete and James to discuss their experiences with trade management.
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