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Selling strangles each month on the S&P 500 is one strategy that can potentially generate monthly income for high-risk options traders.
We ran a 10-year backtest of selling strangles on the S&P 500 to determine whether taking profits or taking losses is more important when attempting to profit by selling strangles.
In this video, you’ll learn a common mistake new options traders make: not focusing on losses.
We’ll investigate whether focusing on taking short strangle profits or keeping losses small is more important for long-term profitability.
Study Methodology:
Underlying: S&P 500 ETF (SPY) from January 2007 to present.
Entry Dates: First trading day of each month.
Expiration Cycle: Standard expiration cycle in the following month (43-52 days to expiration).
Trade Setup: Sell a 16-delta call and a 16-delta put to create a one standard deviation short strangle.
Trade Management Approaches:
1. Close profitable trades for 50% of max profit
2. Close unprofitable trades when the loss equals the maximum profit potential (a -100% return on the trade).
Which approach made more money?
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