Close some options at 25-50% profit?!

SanMiguel

SanMiguel

I keep seeing on mange options sites the strategy to close butterflies at 25% profit and spreads at around 50%.
The supposed idea is that it increases win rate but they all cite statistics that are never referenced, eg "the studies say that increasing win rate and banking profits increases the profit in the long run". Does anyone know where these studies are referenced?
It's completely counter to more basic trading where usually reward is higher than risk (obviously depending on win rate).
I assume the time decay has something to do with it
 
qwertyjjj said:
I keep seeing on mange options sites the strategy to close butterflies at 25% profit and spreads at around 50%.
The supposed idea is that it increases win rate but they all cite statistics that are never referenced, eg "the studies say that increasing win rate and banking profits increases the profit in the long run". Does anyone know where these studies are referenced?
It's completely counter to more basic trading where usually reward is higher than risk (obviously depending on win rate).
I assume the time decay has something to do with it
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Don’t know what they talk about.
But it’s stupid to talk only about rewards.
In order to be profitable then gains > losses.
If you bank small profit then you’ll win often but little.
 
qwertyjjj said:
I keep seeing on mange options sites the strategy to close butterflies at 25% profit and spreads at around 50%.
The supposed idea is that it increases win rate but they all cite statistics that are never referenced, eg "the studies say that increasing win rate and banking profits increases the profit in the long run". Does anyone know where these studies are referenced?
It's completely counter to more basic trading where usually reward is higher than risk (obviously depending on win rate).
I assume the time decay has something to do with it
More...
%%
Sounds great;
in theory+ the few daytrading millionaires + more market makers may do that %.
Most of the millions + billions in market are made by market makers/specialists + investors/dividends.
UPRO did 100% ,2019/+; not very often 100% 0r 50%. But possible.
Wisdom is profitable to direct. NOT a prediction.
 
This is not what profitability looks like.
Trades: {+1,+1,+1,+1,+1,+1,+1,+1,+1,-10}
PnL over time: {+1,+2,+3,+4,+5,+6,+7,+8,+9,-1}

You've earned little 9 times out of 10
You've maxed out your win rate. BRAVO !
But in the end you're still not profitable as you're -1

Sorry ...

You don't get paid by being right.
It's how much you lose overall.
How much you earn overall.
That does matters.

In my example your earn 9 overall and lose 10 overall.
No matter how often you lose or win.

Usually this is what it looks like while selling naked options.
You win 99% of the time. Then one day you lose it all.

Watch out for two books:
Options, The Plain and simple guide to successful strategies
The business of options, time tested principles and practices
 
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I think for the 25%, is usually on butterflies at1:3 or 1:4 risk reward with 20-30% probability. It's not -10 for the 1 loss but for sure it's not just +1 on every trade either.
The above link is not the only site promoting a 25% take profit - it seems to be almost every options site talking about butterflies
 
qwertyjjj said:
I think for the 25%, is usually on butterflies at1:3 or 1:4 risk reward with 20-30% probability. It's not -10 for the 1 loss but for sure it's not just +1 on every trade either.
The above link is not the only site promoting a 25% take profit - it seems to be almost every options site talking about butterflies
More...

The fair (break even) probability for 1Reward 3Risk is 75% vs 25%
In this case if you TP 25% then you should earn 0% - minus fees over time

The fair (break even) probability for 1reward 4risk is 80% vs 20%
In this case if you TP 25% then you should earn 0.25% - minus fees over time

Without edge and over the long run,

Most of the time if Price is at 0, TP is 1 and SL is -1
Then you got 1/1 or 50% chance of hitting either the TP or SL.

Most of the time if Price is at 0, TP is 3 and SL is -1
Then you got 3/1 or 75% chance of hitting the TP vs 25% for the SL.

Most of the time if Price is at 0, TP is 1 and SL is -3
Then you got 1/3 or 25% chance of hitting the TP vs 75% for the SL.

You need an edge which is either likelihood or impact related.
You need to break the natural symmetry btw implied odds and Risk : Reward.

Taking profit at 25% is not an edge.
It's like saying stay into position for 5 min then get out.
Don't base trades on your PnL, your schedule or anything uncorrelated.

You have to adapt to the market.
Understand it and exploit the opportunities.

Not all trades will be alike.
It's not a one size fits all.

Procrustes, a figure from Greek mythology who abducted travelers
Stretched or chopped their bodies to fit the length of his bed.
 
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