Market Measures - May 17, 2021 - The Monty Hall Problem

published 1 month ago by tastytrade, Inc.

For simplicity and peace of mind, we generally default to manage all trades at 21 DTE regardless of other variables.  Similar to the Monty Hall problem when the host tells you which cards are not the Ace, a 16∆ strangle will have usually undergone significant changes by the 21 DTE mark, and taking those changes into consideration can fine tune your management strategy to your risk-taking objectives.  If a trade was a loser by the 21 DTE mark, holding the trade has a good chance to be profitable by expiration, but expect to take more risk until then.  Conversely, holding a winner at 21 DTE to expiration is like holding a very low risk, low reward trade.

more episodes from The tastytrade network