At tastytrade, 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.
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