Holding Pays More. You Still Should Not.

Hello everybody [clears throat] and welcome back to Tasty Live. My name is Julia from the research team and joined with me today as well as Kai from the research team. We're going to be talking about some of our research highlights um from the last two weeks. And um so thank you everybody for joining us. Um we're also going to be looking over at the YouTube chat. So if people have questions or comments, feel free to drop those in there as we kind of go through our segments. But Kai, how you doing? >> I'm doing great. I I do have to thank you everyone who's watching the show because I was joking to Ban yesterday. Whoever's watching the show at 2:30 2 2:30 right before the long weekend on Friday. Oh, it's a hardcore tasty trader. >> Yeah, it's a hardcore tasty trader uh on a Friday. Uh which is pretty impressive. I myself am watching uh my zero my zero DTE. Um so I wouldn't be surprised. Is it recovered yet? It did recover. >> Oh, you still have it? >> I still have it. Yeah. No, I'm not I'm not doing a I Man, I I put it in late. I had an issue getting filled. I put it in late. So now it's running along, but defined risk. So, you know, little more protection at least, you know, your max loss going into entry. Um, I know like, you know, I've talked to like Jamal, for example, he talks about kind of leaving them on through expiration. Um, I don't like doing that just because the last 30 minutes get kind of crazy. Um, but today >> it is it is especially the last 5 to 10 minutes, >> but we did a study a couple weeks ago. This was not about zero DTE, but it was about breaches, like depending on whether the breach is from like the put side or the call side and the likelihood of recovering. I'd be very curious to repeat that on a zero DTE like an intraday scale. Um but the conclusion from that study was that basically if the you know if your put side gets breached the chances of a recovery are a lot higher than if the call side gets breached. This is over longer time scales daily time scales. Um but intraday that's that kind of the problem that I ran into. We got a put side breach and it looks like it recovered. So I'll play you know I'm I'm going to put in a smaller profit target for this one probably then decide when to close it. But I don't know if that's something you've ever studied yourself. I know you've done a ton of zero DTE segments. >> Yeah, I think I did a couple of piece about the uh about the um rolling and also the bounce uh when touching the short uh short short call. I we had the same similar conclusion as you talked about. The put side has much higher not much but has like a five 10% higher percentage that can bounce back from the uh from the bottom. But the claw side has more stickier kind of a um behavior at the top. You certainly see that on longer time scales when there's like a call breach. It's just the probability of recovering was it's very low versus a put a put breach. You know, you have a higher chance of recovery, but you still run the risk that if it doesn't recover, that loss could be quite large. So, for a defined risk zero DTE strategy, which you know, those are smaller positions. I'm a little bit more comfortable keeping it on later, but I was definitely hoping to be out by now. I can't complain though. I'm on the right side. >> It was rallying the past like a 40 minutes or so. >> Yeah, last 40 minutes or so. 10 from 10 to 15. That's that's the very tight range rally. >> Yesterday, man, yesterday got me, right? Cuz we had this big surge in the morning and then it kind of tampered off a little bit and then another big one kind of like more towards the afternoon. Like that one that one I wasn't wasn't as fun. >> No pullback at all. There's no seven pressures yesterday. It's just stay there up there. There are two rally up and just stay there >> which like I I'm really curious to kind of because now we have I've talked about this a couple times on the show. We have this intraday S&P data, like this one minute S&P data. We've been doing more research on it, but now we can maybe talk more about like intraday patterns because I feel like you have a surge up. That's not uncommon for the S&P, but then for it to have another big rally like that, like two big ones in a row. I feel like that was a fairly rare occurrence, but I'd be so curious to look at the numbers for that. >> It was a little bit scary yesterday. I tried to put on it was tempted to put on a trade after the big rally. I tried to fade it and I was busy at something else. I forgot. And when I came back, there was another one. I was like, "Oh my goodness." >> I know. I I I actually rolled yesterday and I'm glad that I don't usually do intraday rolls, but I actually did yesterday. We had one big one big shift and I'm like, "This seems like a like a real shift, like a regime shift." So, I decided to reposition and thankfully the repositioned one canceled out the losses of the first one and actually I think made a little bit of money. But, um, yeah, that's kind of why I've been putting my trades in a little bit later, just like 9 9:00 a.m. Central time, just having the market get a little bit little bit more time. Um, but still hopefully capturing some of that wider um, expected move. So, I have my chapstick. Um, which looks like a glue stick. So, but what are you going to do? So, do you want to hop into some research? >> Yeah, sure. So uh I have a zero DT piece and I saw your piece too. You have a slightly longer duration. >> So this zero DT piece is about the benion winners. >> Pretty straightforward. Uh let's go to the let's go to the first slide. >> Yeah, let's go to the the first main content. So the the there is a two main way ways to manage position. either we just hold the expiration or we just uh hold the expiration which is 3 p.m. uh central standard time or we close it earlier uh by looking at whatever the criteria you want you want to look at profit target stop loss or just based on time or based on delta or price action you're talking about or whatever trading range or any technical uh indicator you use. So the one of the biggest um tools we use uh for selling premium is by looking at the uh profit targets and I think this is the simplest way and most straightforward for a lot of uh uh uh uh even entry entry-level traders and it's it's pretty pretty obvious right you want to lock in your profit and keep in your p keep in your pocket a certain way so you can avoid the future uh volatility especially for zero DT zero GD Um, like you you you talk about that, you don't want to hold all the way to the last 30 minutes or or 15 minutes cuz the it can't just move 15 20 points and your gamma can explode in your face just within one minute. It it happened so many times to me last year and I gave up. I was like, I don't need that 50 cents the last 30 minutes. >> That's exactly right. There's like so little juice left usually by for a recovery. That makes sense. like you're, you know, you're hoping for a recovery or you're willing to like have the risk to get a potential recovery, like that to me makes a little more sense. But then on the flip side, like if it just keeps going sideways, um well, not sideways, if it keeps going directionally against you, um then those losses could accumulate. But that's part of why, you know, that defined risk for zero DTE is so important. And then likewise, another thing to note in the study is that these are 20, 30, and $40 wide wings, which like that depends on, you know, account size, how big that position is going to be as a fraction of net lick, but those could be fairly large positions compared to just going like5 or $10 wide. So that's going to change, you know, the calculus of deciding, you know, how aggressive to be with the profit targets as well. >> Exactly. Exactly. So I use 20 delta. Uh the main reason is we we did so many studies around 20 delta. So I want to keep keep that as baseline. So if you want to increase your delta increase your width of wine 20 delta and $20 wide uh wings and you can see is going to be compared to our baseline. So I choose 20 delta and three different width of the wings and manage profit at 25%. This is kind of the optimal for 20 delta and $20 wide uh wings that we analyzed before. So I think the optimal is somewhere between 25 to 35. But let's let's keep it simple at 25% this time. >> Yeah. Noting again that that profit target might change a bit again depending on that wing width because that position size changes so much with that wing width um compared to the short delta. So, uh, like 25% for a larger position might make sense versus maybe having like a bit of a higher one if the capital at risk is a little bit lower with a tighter wing width. So, just bearing in mind like the context of the study um, I think is super important. But like 25% for 20 30 $40 wide wings totally makes sense. >> Yeah. So, let's go to next slide. >> Next slide. So this is the basic stats about the uh uh percentage winners and also if we do not manage winners what's the percentage that we're going to give back the profit we already gain during the uh the course of that six and a half hours before three right so the the success rate for these three um different width of wings somewhere between 70 to 75% the wider the wings the higher the success rate which is uh very easy to understand because you collect more premium your break even point is slightly wider uh by collecting those premiums. So that's why the $40 uh should always have slightly higher um probability of success than the $20 wide. And if we manage winners, pretty much all three um have a very consistent 90% success rate. So this improvement is somewhere between 15 to 17% which is which is extremely good. Uh any strategy that you can see more than 90% of success rate is is is pretty good. If you sell five five delta um iron condor strangle theoretically on paper it hold to expiration that's roughly 90% to 90 92% uh success rate but this one we have much tighter wings uh we have much tighter delta by managing it we still can achieve uh 90% success rate which is very good and also another point is if we manage them uh much faster like 25% is not a very aggressive target we're able to prevent those 21 to 22% percent percentage of the winners uh going back to the losers by holding that extra two, three, four hours. >> Yeah, that 90% man, that's sexy. Um for the 30 and $40, 90% is very appealing. And then again, bearing in mind that like that 25% on a $40 wide position is going to be more in credit compared to the 30 and the $20. And like the time I'm assuming I think you're going to talk about time in the trade, but like the time into trade with that 25% as well. Um you're you're in and out usually pretty quickly. Um especially if you're kind of coupling this with other, you know, uh risk management strategies like getting out by 11, getting out by noon or um stop losses, but stop losses with defined risk positions, that's a whole that's a whole wormhole. But that 90% is really nice. And then what the you know like those reversal probabilities after that 25% is equally interesting. So really just locking in those small consistent gains and 90% is very consistent. >> Yep. Exactly. So next slide we're looking at different angle. Uh so this one is the volatility. So one advantage by uh locking your profit is you can reduce your volatility because holding expiration everyone knows the data become extra like astronomical high and the gamma explode in your face. So these last 30 minutes is going to increase your volatility by a it's you're reaching different level of the volatility. You really don't want to hold your zero DT position into the very last 30 minutes. Uh similar to uh analogy about selling 45DT. You don't want to hold to the very last one or two days. Your P&L swing is going to be huge. So that so by managing 25% we were able to cut somewhere between 25 uh% to 50% of the daily swing right by looking at three different strategies uh this is just one benefit to contain your uh average penal in a much tighter range and C bar uh apparently it's it's similar if you use wider rings at $40 you're able to cut like almost $500 out of 3,000 C bar that's what that's like a one6th right one six like 16%. Uh, and >> yeah, so if you use $20, you still able to cut like almost $100. So, in general, managing winners, even though we don't use stop-loss yet in this analysis, we're still able to uh reduce the risk C bar and the in general the the volatility. >> Yes, super cool. Um, I want to keep moving uh you know because of time, but the looking at both of these dimensions just generally is pretty important, right? because options have those skewed P&L distributions. So that's you know standard deviation range tells you where most of the P&Ls wind up landing approximately. Um but then that C bar tells you about that tail. So just looking at both dimensions to really get an understanding of risk um for you know these complex risk profiles. Um super good to look at both. So let's we can go on to the next slide. >> So next next one pretty simple. The most important measurements of all performance is the average P&L. So average P&L uh average PNL by holding to expiration. Yes. Holding expiration average P&L is higher. You're actually taking risk to absorb that data decay in the very last 30 minutes. You do on average you do get a little bit higher premium like uh almost 10 to uh uh almost 50 50% and almost double the P&L for different width of the wings. uh for a lot of the strategy for premium seven strate including strangle or iron condor you're going to see higher P&L by holding expiration that happens it's not 100% of the cases but that happens very often so in this case it's still higher by holding expiration if you if if we we publish more analysis you're going to see a lot of more scenarios you actually end up with higher P&L by holding to expiration but this is not the key point we want to show the key point we want to talk about is actually the next slide Okay, let's go next slide. So, we do see the total P&L higher by holding to expiration. However, we need to take a look at into the uh P&L efficiency uh which is can be defined by PNL divided by hours, days or whatever duration you're looking at for intraday definitely we just use the P&L divided by the hours. uh we have 6.5 uh hours to trade preserver DTE and look at the average uh holding duration for managing 25% it's roughly 2 hours 2 and a half hours so what does that mean that means we open at 8:30 then we can close at 10:30 no later than 11 right so a little bit more than two hours and you cut off 4 to 4 and a half hours risk especially toward the very end so that's why even though the P&L total is higher by holding to expiration. The hourly P&L efficiency is higher if you can take it off early. The P&L is almost doubled here, right? Like a 9 versus five or uh 13 versus 10 is like a 30% higher. So there are different ways you can look at the profit and also the risk. Do you want to be you you want a higher profit the profit you probably need to take higher risk. But for managing winners, you actually try to reduce risk and you actually improve [clears throat] your uh profitability efficiency. >> Yeah. And I think important point to note here about like that real difference between um interpreting strategy and interpreting the statistics for longer duration strategies versus zero DTE. Um one of the advantages with like longer duration, you know, 30, 45, 60 DTE strategies of managing early is that you can have more occurrences, right? Like you can close one, you know, 45 DTE at 21 days and then put on another one and that gets more occurrences over time which can help with, you know, regulating those P&Ls a little bit. But with a zero DTE, it's different. You're in, you're out, and like that's kind of it, right? Because by the time this is collected, that 25% then a lot of that intraday volatility has subsided. Those ranges start to contract a little bit. And then um so just the idea between, you know, the idea of reducing that time in the trade is really to just help control for intraday exposure as opposed to like talking about this in longer duration contexts. The mechanics are a little bit different. >> Exactly. Cool. >> So, let's jump into the takeaway. I pretty much walk to walk through all the benefits of uh managing the position uh by looking at the winners. You're going to have much higher success rate. You're going to have a lower uh daily swing or volatility. You're going to have better C bar, which which means the downside risk and also you're going to have higher um trading efficiency, right? To make the same $50. You're going to you're going to uh you're going to hold much uh much shorter like two hours versus six and a half hours. So one thing we didn't mention is the potential downside of managing winners is or it's not the downside. It's just something some problem it cannot solve is the tail risk because we we we just focus on the winners. We do not focus on the stop loss. So you're going to eventually reach the almost the same tail risk as uh holding to expiration. If the largest loss is $1,400, you're probably going to see the similar largest loss uh even if manage winners. So that's why we're going to do more analysis uh down the road with a different metrics, stop losses, managing early, etc. >> That's right. And really just Yeah. pairing management strategies up because like that 90% looks really nice on its face. But then that 10% of the time can be enough to potentially drown out some of those profits long term. And you can really see that when you compare like averages and mediums, right? Or medians, right? Um but coupling that with other management strategies can become very important. But here we just want to understand like just from the profit target perspective, how does that impact some of our statistics? So just looking at that from that lens I think is really interesting. So super cool piece. >> Yeah. >> Cool. Okay. Then I got about 10 minutes left for this one. This is a piece that um covered I think it was like two weeks ago actually, but I found this really fun putting this together. Um I really >> This is a great piece too. >> I enjoyed putting this one together. It was a good time. Um but stack >> a lot of info. >> It's a lot. This is a lot of info. >> I think we can do it. I believe in us. But as we've been talking about, duration is a critical variable, right? It's a very important part of the trade setup because your P&L statistics, your dynamics, your volatilities change quite a bit when you change your duration. And you know, when you're choosing one, initially, market conditions, binary events, and price dynamics might play a role in picking that time horizon. But options are interesting in that when you have chosen a time horizon, um, you can you can play that in a bunch of different ways. And so what we're trying to understand here is like let's say we're using a 30-day, you know, time horizon in this example. What are the real mechanical differences between doing one 30 DTE strategy versus three 10 DTE strategies? We're going to be comparing a portfolio of 30 versus 10 DTE. And I think an important note about this is that there's no one duration that's inherently better or worse than the other, but rather there is a time and a place for different durations. like when we talk about 45 days, a lot of that is within the context of high IV, right? So, here we're just kind of looking, we're taking a lot of those variables out. We're really just comparing if we were to trade this one short-term strategy uh on a recurring basis versus this longerterm strategy on a recurring basis, how does that change the statistics? Make sense? >> Yeah, I think this is very important concept uh to make it this type of analysis because traders always curious not only put on one trade but to trade continuously, right? So if I have money to trade 130 iron count or whatever strategy, what if I close early or what if I uh I don't want to trade 30, I just want to trade 5 days, 5 days, 5 days, weekly or just every every 10 days. Which one can bring me more money or give me a lower risk? These are very important question. >> Exactly. And there's no free lunch in the market, right? Like there's no inherently better or worse strategy, but rather a trade-off of risks. And it's really just important to figure out what kind of risk profile matches, you know, your risk tolerances and then also your profit goals. So here we're testing um from 2019 to present we're doing just 20 delta short spy strangles. We're exiting at 30% the initial credit one and a halfx stop loss halfway to expiration whichever one comes first. I used data from 2016 to 2019 to determine those thresholds. And here I was trying to give, you know, like trying to maximize pop, minimize C bar is kind of why I was a little bit more aggressive with some of these exit conditions. So here I'm comparing 10 and 30 DTE contracts. First, we're going to compare those on a per trade basis. So how do the per trade statistics differ? And then on a stacked basis for one specific example. So we're just going to pick an example 30 DTE, compare that against 310s, what are the differences for this one example, and then finally we're going to do a back test um with cumulative P&L. So just two portfolios, one trade at a time and it's either a 10 DTE, one gets closed, another one gets opened, or it's a 30 DTE, one gets closed, another one gets opened. Importantly, trades are logged every day at 245. So we don't have intraday behavior. It's really directional. And then um also commissions and fees are not accounted for. So just an important thing to note whenever we do cumulative back tests, just bearing that in mind. Make sense? >> Perfect. >> Let's see if I can do this in in six minutes. Um but on a per trade basis the realized pops between the 30s and the tens were fairly comparable. The 10 DTE collected around 55% the median P&L of 30 DTE. So lower median P&Ls but significantly lower C bar in dollar terms and significantly less time in the trade which as we kind of talked about before that means more occurrences right so with those 10 DTE trades you're collecting less but on a per trade basis that's usually means lower tail risk because there's you know less time for the underlying to go against you um and then also less time in the trade so potentially more occurrences and then if we go to the next slide we can now compare this kind of on a stacked basis So when we trade one contract that locks in the time at entry, right? So and that can either help or that can hurt depending on you know where volatility is at and where it continues to go throughout the duration of the trade. Um [snorts] so that's kind of an important thing to know when you're trading that one duration versus smaller durations sequentially. You're locking in the conditions at the entry time of the trade and those conditions can fluctuate as we're kind of seeing here with these three trade examples. We can see how much that kind of initial credit just fluctuated across this example 30-day period right? >> Yeah. And the the market uh market condition can impact can move these numbers around your IB levels, your underlying uh price levels uh can definitely change the premium collected collected and also the buying power, right? So if you collect uh this [clears throat] is like uh $2. If you collect 50 cents more in the high IV environment and your buying towers is is $50 lower then your potential return in capital is much higher. So that actually moved things around. >> Right. Exactly. And so you're just kind of prone to those market conditions or a little bit more sensitive to those market conditions when you're adopting the strategy just because the initial conditions of the trade um change more with those shorter durations than when you lock in that one long-term duration. But um at any given point and this is not accounting for like intrade BPR fluctuations. This is just saying at the time of entry comparing the like the 310s versus the 130 [clears throat] at any given point the BPR of 110 was comparable to that of 130. So the buying power requirements for the 10DTE you know and the 30 were pretty comparable. So you know if you're putting on 10 sequential trades your buying power at least initially probably doesn't change that much. again if the conditions remain constant throughout each of those 10 duration entry points. Right? So that's an important caveat there. But in this example, right, like the BPR stayed relatively constant. And then when we go to the next slide, what we can see is those 310s collect more in cumulative credit compared to that 130 DTE. [clears throat] And that results in higher credit collected, right, per unit of buying power and highly daily higher daily return on margin from those 310s versus the 130. Right. So like that's kind of that's the tradeoff that you have there which is that you have like smaller positions that in aggregate collect more right um can collect more. It's again depends on the conditions but where you run into problems specifically is when the market undergoes these kind of sustained periods of volatility which we'll get to next. >> Yes. So so this is a great point is it really depends on the duration you choose. Of course, the total uh premium you can collect is that like higher for longer duration, but for the same uh duration with the multiple uh shorter trading uh period like 10 days cumulative, you're going to uh you're going to collect more premium just like 20 uh delta $20 wide iron condor. We actually for zero DQ, we can collect $4, but it doesn't mean you can't keep all of $400 premium. And [clears throat] the more premium you collect, the risk, the more risk you're going to take toward the end of expiration. So you're going to have for 20 trading days for that 30 per 30 DTE for that zero DT position for 20 positions. You're going to have a 20 uh risk point toward the end of the day. That's it's going to have huge risk compared to there's only one risk day toward the end of the 30-day. >> Right. Exactly. And that's the caveat. So when you're trading those shorter durations, you can accumulate profits faster, but that also means or I should say you can accumulate profits faster and potentially more profit, right, in the same amount of time. >> Yeah. >> But what you give up is potentially an escalation of losses as well. And that's what we kind of show on that next slide. So here you can see that cumulative P&L back test where again we have one portfolio of [clears throat] 10, one portfolio of 30s. Each we have one trade sequentially on at a time, no overlapping the trades. So basically you open a 10 at some point it closes and then you open up another 10 approximately 20 delta spy strangle and here we're just comparing that cumulative gain over time and you can see periods where that that you know portfolio of tens is outperforming because of those smaller profits that kind of come in a bit more rapidly. But on the flip side when you have an event like 2020 or even in like 2025 those sequential trades can also accumulate more aggregate losses and that's exactly what we saw in 2025. So more just because you have more positions on in the same amount of time versus one position taking one loss. And that's the tradeoff. And this is why I'm saying there's not one that's inherently better. There's just tradeoffs in risk. And it really depends on what you're kind of looking for and what your profit goals are and your risk tolerances when it comes to picking one. >> That was a great chart showing the visual. You can see visually where the profit comes in and where the risk is going to destroy portfolio. So you got to be prepare prepare for uh collecting more premium but you're going to take more risk. >> Right. Exactly. So just to kind of wrap up. So in this back test the per trade pop was comparable between the 10ens and the 30s where the 10ens collected less in median P&L than the 30s but with significantly lower C bar and less time in a trade. Um trading one contract locks in the credit at entry while credits across multiple consecutive shorter durations might vary. And this can either help or hurt the aggregate position. And that really depends on how volatility evolves over that time horizon. The 310s might collect more in cumulative credit than 130 DTE resulting in a higher credit per unit of buying power and higher daily return on margin. But that comes with a trade-off and that really gets exaggerated during those sustained periods of high volatility. though those 10 DTE positions might have had lower C bar per trade, the consecutive losses can amount to a larger aggregate loss versus the one. So those are really the trade-offs between the two. I wrote an article about it over on X if you guys want to give it a deep dive, you know, read through the deep dive, but I thought this was a really interesting segment and showing that yeah, one's really not inherently better than the other, but rather there are periods where one duration might be more suitable and it's up to you to kind of make that determination. >> Yeah. So look at your cumulative performance chart. It actually give you very similar ending results. So your decision as a trader is which road you want to take. >> It's up to you. It's a it's a constant question. But um really cool awesome being on with you today, Kai. Um looks like people over in YouTube chat. It was awesome to see everybody here as well. I hope everybody here enjoyed the research kind of deep dive and found that interesting. Um we do this weekly so feel free to hop in usually on Fridays. Um so thank you guys everybody for coming. Feel free to, you know, like and subscribe. I think that's the YouTube. Like and subscribe if you want to follow along for more. Um, I'm Julia. This has been Kai and we've been from Tasty Research. So, thank you guys very much. Peace.