This segment reveals the results of a study selling naked calls and tests a few strategies for managing the trades, namely, cutting losses at 1,2 or 3 times the premium received. This is a natural follow-up to the Market Measures of September 1, 2015.
A study was conducted from 2005 to present using the SPY (S&P 500 ETF). We sold 1 standard deviation calls (with a 16 delta) on the first trading day of the month using the options closest to 45 days to expiration (DTE). We several strategies. The strategies were holding to expiration, managing at 50% of max profit and exiting when the loss was 1, 2 or 3 times the premium received for selling the call.
A table displayed the results. The table showed the P/L, percentage of profitable trades, average P/L per day, average trade P/L and largest drawdown for holding the position to expiration, exiting at a 50% win, exiting at a 1x loss, 2x loss or 3x loss. A graph from 2005 to present of the running P/L for all the strategies mentioned on the SPY 16 delta short calls was displayed.
A second table was displayed with more results from the study. The table showed the percentage of trades that reached stop-loss and the percentage of stopped-out losses that would have eventually expired profitable on 1x, 2x and 3x losses as multiple of the initial credit.
Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the the takeaways and the detailed results of the study testing methods of managing a short call strategy.
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