We often emphasize managing strangles at 50% of max profit. This improves their success rate well above the probabilities implied by options pricing.
In today's segment, our Research Team tested to see if 50% of the initial credit received is a favorable profit target for managing 1 SD (standard deviation). Additionally, is it more efficient to reduce the time in the trade by managing earlier or staying in the trade longer to hopefully increase P/L?
Using SPY(the S&P 500 ETF) from 2005 to present, we sold 1SD Strangles in option cycles closest to 45 Days to
- 100% (expiration)
Similar to, our results indicated that higher profit targets tend to experience diminishing win rates. Profit/Loss per day, however, clearly peaked at the 50% management level.
Watch this Market Measures on Strangle Management for the valuable takeaways on ideal profit targets when trading undefined risk strategies.