This segment puts more context into why our philosophy is to manage winning strangles at fifty percent of maximum potential profit versus holding the position through expiration. We look at some familiar numbers in an unfamiliar way with the help of our own Dr. Data (Michael Rechenthin, Ph.D.).
We believe, and our studies have shown, that when selling strangles it is better to take profits at 50% of the credit received and exit quickly (usually around 26 days) rather than to hold out until expiration (typically 45 days) and receive a larger profit. Some of our viewers question our numbers but those who watch this segment will not.
Dr. Data provides the numbers tables charts and makes use of the five number summary method that he introduced to tastytraders in his segment on August 13th to explain things. He goes through the data to show the numbers of winners and losers and the average gains and losses. He points out the problem that our doubtful viewers have identified and how it seems that managing winners at 50% would lead to an overall losing strategy. Dr. Data then blows them out of the water and explains what they are not taking into account.
The math may seem challenging at first glance but Dr. Data makes it easy. His explanation is convincing and clear. All the information you need or would want is provided. A very convincing stat is the average profit per day.
Watch this segment of “The Skinny on Options Data Science” with Tom Sosnoff, Tony Battista and Dr. Data to see in a different context why managing profits and losses is a better strategy than holding until expiration.