We strongly believe in managing winners. Our studies have shown that it increases our P/L, P/L per day, win rate and can turn what would eventually be a losing trade into a winner. What other important things can we learn from a study of managing winners?
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 expiration cycle closest to 45 days to expiration (DTE). We managed at 50% of max profit if possible or held the trade to expiration.
A results table showed that the average duration before the Call side was breached was 30 days and that it was 24 days for the Put side but just 23 days for the trade to be managed at 50%. A second table showed the percentage of trades in which the Call side was breached and the percentage the Put side was breached both when holding to expiration and when managing. By managing the trades there was a dramatic reduction in either side being tested. Additionally, the profit per day is higher.
For more information on Managing Winners see:
Market Measures from January 26, 2016: "Managing Winners | Exiting Based on Duration"
Market Measures from April 13, 2016: "Take Off Winners, Before They Become Losers"
Market Measures from April 20, 2016: "Manage Winners and Close Early"
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