Market Measures

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Picking the Top

Market Measures

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At tastytrade, we employ mechanics in order to allow the probabilities to work in our favor in the long term.

However, in the middle of a losing trade or a very profitable one, it’s easy to abandon mechanics in favor of intuition and convince ourselves that this is the best time to get out of the trade.

How much more can we make if we picked the best point of exit in a trade? And how likely is it to do so?

Study:
  • SPY, 45 DTE, 2005-2018
  • 16∆ strangle
  • Managed at best possible scenario in the 45 day cycle vs managed mechanically at 21 DTE.
  • Recorded daily P/L

We find that not only is it impossible to pick the top over the long run, we don't make all that much more from doing so. Sticking to mechanics will still make us successful and will take all of the guessing out of the equation.

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