When we executestrategies (such as a short ) we advocate in order to reducts risk while taking profits off the table. We take our profits at a certain percentage of the maximum possible profit (what we received in premium). What percentage of maximum profit is the best for managing Straddles?
Using SPY (S&P 500 ETF) data from 2005 to the present, we sold Straddles in the option
- 75% or
- 87.5% of maximum profit.
Ultimately, the win rate and P/L per day dipped considerably after the 25% management target, and while the results for the 12.5% target looked about the same as those of the 25% management level, traders must consider the average P/L per trade as well as their commission structure for total profit.
Additionally, the study revealed no advantage historically to managing at profit targets higher than 50%, and that the 25% target was the best as the P/L per day for that target was the highest and nearly double any management target past 50%.
Watch this segment of Market Measures withand for the valuable takeaways and results from our study that reaffirm our previous conclusions on exiting winners early.