Our research has indicated that we should always manage winners, and that they should be managed at 50% of max profit because it increases the odds of overall profitability and the highest profit per day. Today, we decided to study managing winners based upon duration instead, since some positions never reach the 50% threshold.
A study was conducted using SPY (S&P 500 ETF) from 2005 to present with 1,345 occurrences. We sold 1 standard deviation Strangles using the 16 delta options closest to 45 days to expiration (DTE). We compared the results of exiting the trades one, two, and three weeks prior to expiration.
The findings suggest that managing early is superior to holding until expiration from an average profit per day standpoint.
Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for the discussion around managing positions early!
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