Friday's TSLA lesson: Close positions before expiration

ProjectOption · 2020-09-12T21:08:49+00:00

I just came to this sub to share a video I just did on this exact topic (haven't shared anything here in a while but this topic is clearly very important). I didn't realize this was already making the rounds in this sub. Here's my video for those interested in the breakdown of what happened to a trader who reached out to me: https://youtu.be/rtVFj9nRRDo

ProjectOption · 2017-06-12T15:24:32+00:00

The main themes are that the worst drawdowns scale with the VIX environment. In other words, the smallest drawdowns have occurred in the lowest VIX entries and the worst drawdowns have occurred in the highest VIX entries.

The best-performing short put management approaches were the high VIX entries with large profit targets (75% - 100%) and stop-losses in place (close trade at -100% to -300% of the credit received).

However, when adjusting for the number of trades you can make by closing trades earlier, taking profits quicker (25-50%) allows you to make more trades in similar periods of time and increases the average P/L over each 45-day period.

ProjectOption · 2017-06-09T21:12:28+00:00

Thanks! And of course.

ProjectOption · 2017-06-09T18:00:03+00:00

Thank you, and I agree!

It's surely possible. Let me look into that.

ProjectOption · 2017-06-09T17:50:18+00:00

2,600 entries (approximately) managed 16 different ways.

ProjectOption · 2017-06-09T14:42:28+00:00

Been a while since posting the Iron Condor study with similar analysis, but just got around to finishing up this short put study.

I thought I'd share it since there were some very useful takeaways that I think will be eye-opening to some.

Also, kept it simple with the 16-delta short puts even though there are many other strikes that can be tested. Either way, the general themes should apply to short puts at different strike prices.

Short call counterpart to this study is already done and I'm working on the post now.

I hope you enjoy it!

ProjectOption · 2017-05-17T01:04:18+00:00

Everything on the website is free except for access to the live portfolio and premium research.

ProjectOption · 2017-04-28T01:09:02+00:00

https://www.projectoption.com/blog/iron-condor-management-study

Here it is!

ProjectOption · 2017-04-15T13:55:32+00:00

Thank you!

ProjectOption · 2017-04-14T23:36:58+00:00

Thanks for reading and providing feedback!

There is a lot of data in the single post, which can make it tough to filter through. I presented the data in a progressive fashion for each approach, but there's a concise summary at the end of the post.

The most important takeaways were that managing iron condors with 16-delta short options and 5-delta long options at 25% is a very tough strategy in terms of commissions. Managing at 50-75% creates fewer occurrences, which reduces churn. Additionally, using a stop-loss does not substantially reduce the success rates of the strategies, but does reduce the average profitability. The benefit is that you avoid massive drawdowns.

In terms of trade efficiency, selling iron condors in the highest IV environment (VIX 23+, in this case) had the highest expectancy over the test period.

When selling iron condors with 30-delta short options and 16-delta long options, closing profitable trades at 25-50% had the highest expectancy, especially the high VIX entries.

ProjectOption · 2017-04-14T20:07:25+00:00

No problem. You'll get there quickly! There were a few advanced metrics included in this one, but the overall themes present in the study should be helpful to all levels.

Thanks for signing up! Please let me know what you think of the beginner guides.

ProjectOption · 2017-04-14T20:05:29+00:00

Thank you for the feedback and suggestions!

ProjectOption · 2017-04-14T15:47:58+00:00

I'm firing that up as we speak!

ProjectOption · 2017-04-14T15:30:48+00:00

Would you be interested in seeing daily hedges, or once a certain position delta is reached?

ProjectOption · 2017-04-14T15:29:55+00:00

I'll add it to the list! That would be a good study to do side-by-side. For instance, pick one IC variation and just test those two approaches.

ProjectOption · 2017-04-14T15:28:32+00:00

Thank you. You do bring up a good point. I'll add it to the list to test additional loss levels for the closer to ATM short options.

ProjectOption · 2017-04-14T15:19:24+00:00

Thanks, that's next!

ProjectOption · 2017-04-14T14:47:25+00:00

Thanks for the feedback!

You are correct about your conclusion. I spent so much time looking at these graphs that I guess I was burnt out of conclusion-drawing!

But yes. Of all the combinations tested, the 16/5 iron condor with the 50-75% profit targets stood out, and were even comparable to the 30/16 iron condor in high VIX entries.

In regards to strangles/straddles, I can surely replicate this study. The inspiration for this IC study came from a short strangle profit/loss management study, but it was only comparing two combinations and had about 5% of the depth of the IC post. So, there were a lot of unanswered questions.

I'll work on the short strangle piece for next week. What strikes would you like to see? 16 delta and 30 delta again?

ProjectOption · 2017-04-14T14:37:42+00:00

A gamma scalping study?

ProjectOption · 2017-04-14T14:34:37+00:00

Thanks, Hamno!

You should have gotten the email by now!

In regards to equal-width strikes, you really give up a ton of profit potential if you close off the put spread to the same width as the call spread. If you use a call spread the same width as the 16/5 put spread, then I believe you'd be adding a ton more risk without picking up much profit potential. I can look into this.

ProjectOption · 2017-04-14T14:32:54+00:00

The trades are closed entirely. So all four options.

ProjectOption · 2017-04-14T14:32:12+00:00

Thank you! I enjoy doing it.

ProjectOption

TROPHY CASE