Market Measures

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Short Put Management Performance

Market Measures

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Traders have lots of flexibility when deciding how to manage their trades. In this segment, we compare the impact different management targets have on short put trade performance.

The Study:
  • 16 delta SPY Puts
  • 45 DTE
  • 2005 – 2017
  • Compared:
    • Managing at 50% max profit
    • Managing at 25% max profit

When comparing the percent of profit management targets, we see that managing at 50% results in a higher P/L but also has a longer trade duration. In contrast, managing at 25% of the max profit frees up capital more quickly to make trades but results in a lower cash reserve in the case of a down turn.

To take the study a step further we also looked at the performance of managing trades when the number of days to expiration is 21. We see that the ending P/L of managing earlier is very close to both managing at 25% and managing at 50%, all of which outperformed holding to expiration.

In conclusion, whether you prefer to manage your trades at 25%, 50% or after 21 days is up to you but the most important takeaway is to manage your trades. Holding trades to expiration introduces gamma risk and a lower probability of profit.

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