Market Measures

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IV Rank Based Profit Targets

Market Measures

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Although high IV Rank results in a greater credit, it does not necessarily relate to faster trade management. Since we receive a greater credit when trading in high IV Rank environments, but we reach the 50% profit target in the same number of days, should we manage high IV Rank trades earlier?

Study:

  • 16 delta SPY Strangles
  • 45 DTE
  • 2005 – 2018
  • When IV Rank > 50 Compared:
  • Managing at 50% max profit
  • Managing at 25% max profit

Results: When you manage strangles at a smaller profit target, you face the potential for large losses to diminish gains. Managing at 50% protects profits. However, when we shorten the data frame to include trades from 2009 – 2017 and avoid 2008, results for both managing at 50% of max profit, and managing at 25% max profit improved dramatically.

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