Hump Day Traders: TT - MM: Managing Winners, 08/29/13

The trading industry tells us to always manage our risk.
If everyone is always managing their risk, and no one is making money, how does managing our risk work?
Screw managing risk! Let’s just manage our winners!

Underlying assumptions could be about the stock, the stock’s volatility, or the sector.

If I've made 50% of my potential in one day then it makes no sense to hold for 39 more days.
If I've made 60% of my profit with 50% of the time remaining I should probably cash in.
Underlying conditions:

A 1 standard deviation strangle has a 32% chance of losing and a 68% chance of staying between the strikes and expiring.
(Shorting a strangle is a naked position and therefore carries a large margin requirement.)
TastyTrade video: Standard Deviation 1 from 18-Jun-2012 (starts at 2:00), or YouTube.

SBUX, AAPL, NFLX: all had monster runs, one way or the other in the past 2 years.
AAPL and NFLX had exaggerated moves in both directions.
SBUX had one-way move up.
We chose a strangle which in reality wants a stock to stay within a specific range.

Suppose you sold a SPY strangle for $1 and bought it back when it dropped to $0.75, it would have been profitable 100% of the time. (.25 net out of 1.00 potential)
Holding until 50% profit only lost once and produced both higher profits and profits per day.
Holding out for more than 50% produced more losers, a negligible increase in profits, and a lower average profit per day.
Therefore, optimal target % was between 25 and 50% of maximum potential profit.
Avg. P/L per Day = (P/L) / (avg # of days held) / (24 cycles)

Hump Day Traders