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Market MeasuresManaging Winners by Managing Earlier | Sep 9, 2016
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    Market MeasuresManaging Winners by Managing EarlierSep 9, 2016

    Numerous tastytrade studies have shown that managing winners improves performance. We also know of the increased risk from Gamma that comes with staying in a trade too close to expiration. We wondered what would produce better results if we were selling premium using a strategy of short Strangles; managing at 50%, exiting at a set number before expiration or a combination of both?

    Our Study was conducted in the SPY (S&P 500 ETF) using data from 2005 to the present. We sold the 1 Standard Deviation (SD) Strangles using the options expiration closest to 45 Days To Expiration (DTE). We then compared strategies of managing winners at 50% of max profit (if possible) versus closing positions at 7, 14 or 21 DTE or a combination of both strategies.

    A table of the results comparing managing the short Strangles at 50% of max profit and exiting the trade at 7,14 or 21 DTE was displayed. The table included the average P/L, win ratio and duration. Managing at 50% on top of managing earlier helped improve the win ratio. It also further reduced the average duration of the trade thereby reducing Gamma risk. A 10 year graph of the long-term cumulative performance using 1 short Strangle contract and keeping only 1 contract open at a time was displayed. The graph showed P/L lines tracking the performance of closing the position at 7, 14 or 21 days before expiration and also closing the position 7, 14 or 21 days earlier than expiration plus managing at 50% of max profit if possible. The graph showed that managing winners on top of managing earlier produced the highest P/L.

    For more information on Managing Winners see:

    Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for the valuable takeaways and the results of our study on managing winning Strangles at 50% of max profit if possible versus exiting a set number of days before expiration or a combination of both.

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