Boost your success by trading frequently

Boost Your Success by Trading Frequently

By:Kai Zeng

Selling one contract a day instead of in bulk raises profits and reduces volatility

  • Small-scale trading aligns with the law of large numbers.
  • Selling one contract a day instead of in bulk produces a better average profit/loss ratio and decreases portfolio volatility.
  • Spreading out trades captures small profits that add up over time and potentially outweigh the gains from fewer, larger trades.

Traders often grapple with the question of whether to engage in bulk trading or to adopt a small-scale approach with multiple entries and exits. The answer to this question lies in the understanding of statistical outcomes and risk management.

Bulk trading, where traders enter and exit positions with multiple contracts at once, may seem appealing because of its simplicity. However, its counterpart, small-scale trading, where the same total number of contracts is traded consecutively one by one, offers a different set of advantages. The latter aligns more closely with the law of large numbers, which suggests that increasing the number of occurrences in trading can lead to results that are more predictable and in line with statistical expectations.

Consider the analysis of the SPDR S&P 500 ETF Trust (SPY) 45 day-to-expiration (DTE) 16-delta strangles over the past 15 years. In this study, two methodologies were compared: selling one contract every day throughout the 45-day cycle vs. selling an equivalent number of contracts once at the expiration cycle.

The results were telling; small-scale trading not only produced a better average profit/loss ratio but also exhibited a significant decrease in portfolio volatility.


Moreover, when strategies were tweaked to manage trades at 21 DTE—thereby halving the trading duration—the average number of contracts per 45-day cycle dropped to 23. This early management concept further reduced risk and diversified trading cycles, leading to an enhanced performance across the board.

21 DTE

For example, a trader engaging in small-scale trading with the likes of Apple (AAPL) or Microsoft (MSFT) could benefit from the frequent adjustments and reduced exposure to sudden market moves. By spreading out their trades, they can capture small profits more regularly, which can add up over time and potentially outweigh the gains from fewer, larger trades.

The key takeaway for traders is the importance of diversifying trading volume and maximizing the frequency of occurrences. By doing so, one can effectively decrease the volatility of their portfolio. Additionally, managing trades earlier, at 21 DTE, can serve as a risk mitigation tool, diversifying trading cycles and leading to improved overall performance.

Kai Zeng, director of the research team and head of Chinese content at tastylive, has 20 years of experience in markets and derivatives trading. He cohosts several live shows, including From Theory to Practice and Building Blocks. @kai_zeng1

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

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