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Pros and Cons of Reducing Profit Targets

Options Jive

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

We recently introduced the idea of changing our profit targets in short premium trades as a function of time; that is, we looked at reducing our management marker as time went by and we were not able to take the full 50% in Strangles or 25% in Straddles in the early part of the trade.

Today, the guys take a deeper dive into the numbers comparing waiting for the full 50% or 25% versus reducing our expectations as time goes by. We saw that the win rate in the trade increased when we took smaller winners nearer to expiration, but the average profits in the long run were reduced. Also, the dynamic management strategy saw a shorter amount of time in the trade relative to managing for the full tastytrade management amount. Finally, dynamic management reduced the standard deviation of P/L in the trade. Check out the segment above for further detail.

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