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P/L Swings and Trade Management

Best Practices

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Options are prone to very large swings in P/L throughout the duration of the contract, and managing early is one way to reduce exposure to these swings on average.

To visualize why managing early is an effective technique, Tom and Tony look at the average P/Ls of short 45 DTE 16Δ SPY strangles as they approach expiration.

We tend to manage 45 DTE contracts at the 21 DTE mark because, after the halfway point of the contract duration, the average P/L stays roughly the same while the P/L uncertainty rapidly increases with time.

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