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 toversus how much a stock changes when the position is early.Study
SPY, 1, 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
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.