Join Tom and Tony in today's discussion on defined risk spreads. Covering everything from the entry to management of the trade.
When looking to enter a short defined risk spread, tastytrade tends to default to collecting 1/3rd the width of the strikes. This allows us a higher probability of profit, and the maximum loss is only 2x the credit received. Additionally, having a maximum loss in mind that aligns with the rest of our positions or portfolio allows longer-term probabilities to play out.
Because we know our maximum loss on entry, tastytrade typically does not defend/roll defined risk spreads, and instead allow the initial POP of the position to work.
Like in undefined risk spreads, we also manage our winners, looking for 25- 50% of maximum profit. This allows us to take winners off the table, re-establish new, high probability positions to boost our number of occurrences and maintain a high probability portfolio.