Some traders argue that managing losers for risk-defined strategies is necessary because it could prevent losing 100% of the trading capital. So, today we are going to compare the performances with and without managing losers in spreads.Study
- SPY, Closest to 45 DTE, 2005 to Present
- Put spread with 30 delta short puts
- Compared the width of the wings at:
- 2, 3, 5, 10
- Holding to Expiration
- Managing losers at 2X of the max profits
We find that, on average, managing losers does not outperform holding to expiration. Additionally, if we trade a portfolio with one lot at a time, managing losers actually ends up underperforming holding to expiration.