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#220 - When To Take Profits Vs. Letting Winners Run: Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be talking about when to take profits versus letting winners run. This topic basically came from a question that somebody submitted. I...

#220 - When To Take Profits Vs. Letting Winners Run: Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be talking about when to take profits versus letting winners run. This topic basically came from a question that somebody submitted. I...

A partire dalThe "Daily Call" From Option Alpha


#220 - When To Take Profits Vs. Letting Winners Run: Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be talking about when to take profits versus letting winners run. This topic basically came from a question that somebody submitted. I...

A partire dalThe "Daily Call" From Option Alpha

valutazioni:
Lunghezza:
9 minuti
Pubblicato:
Apr 30, 2018
Formato:
Episodio podcast

Descrizione

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be talking about when to take profits versus letting winners run. This topic basically came from a question that somebody submitted. I want to read the question here for you guys, so you guys understand the basis behind it. They said, “Kirk, given the research that you’ve done, I know there's been a change in when to close a position for a profit. The old guidance used to suggest taking straddles and iron butterflies off at 25% of a gain and strangles and iron condors at 50%. Now, I understand that the research shows leaving on particular straddles and iron butterflies a bit longer sometimes in the right direction and I, perhaps and others are interested in learning how you decide to take these positions off at 25% or 50% versus letting them ride a little bit longer and why the research suggest that we hold positions versus take them off. Again, learning through your thought process in these situations would be very helpful.” First of all, thank you for submitting the question and as always, if you guys have questions, I want to hear them. We want to read them if you're okay with that or play it in an audio podcast on the weekly podcast if you want to submit them at optionalpha.com/ask. In any case, I’m trying to answer as many of these questions as humanly possible, so please get your questions in and don't be shy about it. There's two things we have to talk about. One is what does the research now suggest. The old way of doing it… I don't say old way like it was a bad way. It’s just we didn't have all the data that we have now on strategies. We were kind of handcuffed to a certain degree many years ago because we didn’t have the ability to buy data, to build out a back-testing framework, software, technology around that. Now that we have that, we have to be realistic in that our expectations or what we’re doing have now shifted a little bit. The good stuff that came out of a lot of the back-testing that we did and when we released our huge back-testing report called the profit matrix which you can get to at optionalpha.com/profit is that a lot of the key concepts that we have been preaching about from basically 10 years remains true and evident, basically that option selling works, it’s the most effective strategy, taking profits early works, extending duration works, a lot of these key concepts. Now, what we have as part of that research since we subdivided each of the strategies and all the test into different buckets around implied volatility and when the trade was entered and when it was exited, where IV was, how far out it was, the frequency of the trading, whether you’re doing trading weekly or daily or sequentially, now we have a lot more data around where particular profit targets need to be for situations in different markets. Although it's a good benchmark to say 25% gain or 50% gain on general strategies, we now know that in many cases, there is a more optimal exit in some market situations versus others. Now, this doesn't mean that we now throw that completely out the window. That’s still a good general benchmark. If you don't want to go through the process of buying and reading our research, no problem. You can use those benchmarks and they probably do well. But there's probably a lot better performance that you could get for many of your option strategies by using more optimized framework and data around it. That's in fact why we built the trade optimizer, to use all of this data in conjunction with current market dynamics, so that you can go in and basically say, “Okay. If the market’s 40 days out till expiration and IV is here, what are the best strategies that I should be trading?” In all of that research, what we did find as an underlying thread is that generally, when you hold trades a little bit longer towards expiration, not to say you have to hold them all the way to expiration in every ca
Pubblicato:
Apr 30, 2018
Formato:
Episodio podcast