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Managing Earlier - Stock Movement

Market Measures

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Why does managing positions earlier reduce portfolio volatility? Gamma risk is one answer. But to be more intuitive, we can look at how a stock moves over the course of a trade held to expiration versus how much a stock changes when the position is managed early.

Study
  • SPY, 1 Standard Deviation Strangle, closest to 45 DTE, 2005-2017

  • Compared stock movement by:

    • Holding-to-expiration and managing earlier
    • Stock prices at order entry and at exit point for all occurrences
Results

We find that the stock moves (on average) a lot less over a 22 day period than a 45 day period. This translates to lower portfolio volatility because you are less exposed to directional movements.

Tune in as Tom and Tony expand on these takeaways.

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