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Market Measures

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Recovering From Losses - Managing Early

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

In a previous Market Measure titled “Recovering From Losses” the Research Team found it took roughly two years to recover from the worst losses of 1SD SPY Strangles held to expiration. Given we employ proactive management strategies the team tested how long it took to recover from losses if trades were managed at 21 days.

The Study:
  • SPY
  • 2005 – 2018
  • 1 Standard Deviation Strangles
  • 45 Days to Expiration
  • Compared:
    • Holding to Expiration
    • Managing at 21 DTE
  • Recorded the Loss to Premium Ratio
Results:

When managing the trades at 21 days, the median loss to premium ratio is reduced from 1 to 0.5 and the high is also cut in half from 15 to 8. Additionally, the time needed to recover from large losses is drastically reduced from the worst recovery time of 20 months when holding to expiration to only 12 months when managing early.

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