Hey everybody, I’m BEEF from the tastylive Research Team.
We often get the question "I've reached X percentage of my max profit, does it make sense for me to manage my trade here". We so much uncertainty out there, we decided to take a shot at answering this age-old question…with a study! That’s right! All day, baby!
We ran a test where we sold 1 standard deviation strangles with 45 days to expiration on the first day of every month starting from Jan 2013 to the present. Then we computed the average P/L for each day in all the strangles. From there we plotted a regression line showing the average number of days it took to reach certain profit percentages. From the table we generated we could determine the average number of days needed to hold a strangle in order to collect a certain percentage of max profit.
With this information, we now have a reasonable idea about when it makes sense to manage. For example, if it typically takes 10 days to hit 30% of max profit, and your strangle is at 30% after just eight days, we’d say it probably makes sense to manage that winner and redeploy your capital.
If you want more detail on this study, see the full episode here. There’s also thousands of other great segments in the show archives. Check it out!
OK, I’m Mike Hart. Thanks for watching Market Measures Notebook!
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.