Market Measures

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Best of 2016: Making Adjustments

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Today’s "best of" segment reviews 3 of our top segments on making adjustments. Not every trade goes perfectly, but by making some small adjustments we can vastly improve our odds.

“Why We Roll Strangles” on October 28, 2016

In this study, we sold the 1 Standard Deviation (SD) Strangle in SPY every day with the option expiration nearest 45 DTE. If one side was tested and there were 30 DTE or less, we rolled the untested side to the new 30 Delta strike. All trades were held until expiration. The results showed that rolling the untested side of a short strangle gave us a higher win rate and average P/L, compared to making no adjustment.

“Rolling Puts” on December 7, 2016

Our study on why we roll tested Puts was conducted in the SPY using data from 2005 to the present. We chose the option expiration cycle closest to 45 days to expiration (DTE). We sold a 1 Standard Deviation (SD) Put and held it to expiration. This study indicated that rolling the “tested” puts to the next monthly cycle produced better results than taking no action. The average and median P/L per trade went from negative to positive and the percentage of trades profitable jumped from 53% to 82%.

“When To Roll Covered Calls” on August 19, 2016

Last but not least, Tom & Tony recapped a study based on defending Covered Calls. We sold the 30 Delta Calls against long stock. We tested rolling the Calls at expiration versus rolling the Call to the next expiration cycle if the option dropped below 0.25. The results showed that rolling when premium was low (below 0.25) yielded the best returns and cost basis reduction.

Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for an important recap of three of the best 2016 Market Measure segments on making adjustments to trades and why we manage and defend our positions.

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