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What if the best risk management has more to do with when you trade rather than what you trade? In this market measures segment, we test what happens when options positions are spread out across multiple expirations instead of having all of them expire at the same [music] time. Using real market data, we test how this approach affects profits, losses, and the overall volatility of your positions. Keep watching to see how our research could change the way that you manage your [music] trades. lading option positions across multiple durations. We kind of mentioned this a little bit earlier. We haven't done this specifically. Maybe it's something that we look at. I think you kind of um from a volatility perspective, of course, you want higher volatility, but it is sort of a um a volatility dampening trade where you're trading further out on the curve. So you're not you're not getting as much of that vol exposure as you would like if you think about you know lading three puts versus doing three contracts in in the front expiration. It's going to be a much less u much less vol exposure on that trade versus the shorter duration trade. So it might be long-winded answer like Intel was one that maybe we can look at that uh because we already sold the uh 37 strike February puts. Maybe we can look at you know further out >> um expiration there too. >> Anyway, um so traders frequently use various option strategies and deltas to diversify their portfolios. The standard taste trade mantra is to to look for that 45day expiration. That's the optimal time. However, we can further improve diversification by spreading expiration dates across multiple cycles which will which is commonly known as lattering positions. So this is selling. Would you say we typically do or you typically do the same delta or the same strike >> when I'm lading puts? >> I I usually you can move it about one strike lower for every month that you go. And I'll usually do that. So if the stock is 100 and I'm selling the 95 put one month out, two months out, I'll be looking at the 90 put. Three or four months out, I'll be looking at the 85 put. That's the way I do it. Okay. So, you don't look at Delta like I I sold the >> I I guess in Intel it's probably not the greatest example because they're, >> you know, the the Deltas aren't it's a lower price stock. So, they don't, you know, there's >> it's not as many strikes in between. It's really one strike in between. But, so you don't you don't look at necessarily 30 delta over a three threemonth period. >> You know, each strike. >> It's going to work out to be about one strike. We're going to get to the same place. We're going to get to the same place. Yeah, it's about the same. All right. So, I I just said I'm usually able to go down a strike. That was just a broad-based statement. >> Yeah. >> But you it'll work out that way in time. You'll see. Okay. You'll see. But we're getting to the same place. If you're going to look at 30-ish delta option, you might be 2932. We're going to be in the same place, one strike below the the the month that we did prior. So, that's usually what >> Very good. Well, the study that we're looking at is looking at the delta. So, um, so basically what this means, >> that's the way you would do a study. Like you wouldn't [clears throat] >> Yeah. Cuz that's how you make it, that's how you weight everything to the same denominator. That's correct. By looking at Yeah. >> So, uh, what we mean by lading positions is, uh, instead of trading them all in the 45 or 30-day expiration, which we have here, we're looking at spreading that allocation out across three expirations. So, we're looking at one in the So, using three as an example, three puts. Mhm. >> Versus having one put in the 30-day, one put in the 60-day, and one put in the 90-day. So, you're spreading the same amount of total outlay in terms of risk spread out across three expirations versus putting that all in one expiration. That's that's what lading is, lading across multiple expirations. Um, we're going to do this on the 30 delta SPY puts, and we're going to do this over the last 12 years here. So pretty decent sized uh data set here. So looking at some of the returns here. So while the traditional method of selling puts results in a better average profit and is more efficient due to its shorter duration. So you're getting out you're cycling out of these trades much quicker. So that compounds as well. Um lading positions offers a higher success rate and lower risk. And that's because what we talked about kind of in the first part of this session is that you're spreading your volatility risk is different, right? So the front volatility is likely going to be higher than what you're selling in the back. And so you you have less of that V exposure which means that you're also going to have less reward. It's why you know there's always that gimme and gotcha is you're going to have more reward and more risk going into the shorter duration and you know still good riskreward flattering it out but it's going to be lesser. It's going to be a tighter distribution and you can see that here. You know, they've both been the success rate of both of these have been have been phenomenal. A lot of that has to do with just the market over the last 10 years has been mostly up. Um, and so it it has worked. You >> market helped. >> Yeah. You you obviously have these big tail type events in between there, but you know, it's been overall a successful trade. uh whether you do the you know standard trade or the ladder type position. >> Good. It's worked because the market's accommodated, right? >> Yes. >> But the the mechanics are sound on the directional bias. That's the most important. >> Yes. So, um how effective is the ladder position when managing portfolio risk? We then evaluated the volatility of these mini portfolios by calculating the daily P&L volatility as a percentage of the max potential profit. So, um, this is just kind of a a a look at at just how volatile and how wide your dist distribution of returns is. And so, on this next slide here, we found that diversifying our positions across multiple expirations can significantly reduce portfolio volatility. And this shouldn't be a shock because further out expirations, you're going to be further out of the money. You're going to have less volatility exposure. Uh, you have more time on those trades. You know, less intrinsic value if you get these big moves. If you have a 10% down move and your short put is in the 30-day expiration, you have a lot more uh intrinsic value on that position than it is 90 days out in time, you you should expect going further out in time, a lot of everything is going to really slow down, right? Profits and losses. And you see it here, you know, your P&L volatility much much wider with our core strategy, which is still relatively tight, I would say. >> Yes, relatively tight. um versus lading it out. So you have that that lesser volatility which some people prefer, right? So um and this gives you an example of of each expiration that we're using the the volatility of returns. Again, selling 90-day options, it's going to be much slower profits, but also much slower and lesser, you know, losses in the near term. And so that always goes hand inand you can see across the board lading will tighten up your your uh P&L volatility. >> Beautiful. >> Um so on the next slide here we're looking at a one standard deviation strangle. So we found a similar pattern on strangles. Additionally strangles dis uh display lower volatility in comparison to just naked puts despite the puts performing exceptionally well during the previous bull market. So selling the the call, it does hinder your profit potential, but it does significantly reduce the the tail risk that you have on these positions. Your volatility definitely shrinks a little bit here. It's not significant, and that's kind of the point here is that the P&L volatility change by selling both sides hasn't been that great over the last 10 years because it's been mostly up. I mean, then that shouldn't shock you as well. >> No, it shouldn't shock you at all. So, a couple takeaways here. Spreading out positions through multiple expiration cycles has the potential to reduce risk and increase success rate, but may sacrifice some profits. That's your gotcha. Uh, neutral strategies such as a strangle have lower volatility compared to naked puts in both traditional and latter portfolios. Uh, that shouldn't be a shock either because you're selling both sides. You're reducing your overall delta exposure on the trade. kind of goes back to the old school core trading type position. If I was a long-term bull, because we're selling puts here, you got to be bullish on the stock. If I was a long-term bull on something that had relatively high implied volatility, that might be my go-to strategy. What am I doing? You're kind of using the the simple strategy of just selling a put. high probability trade typically has a 60 to 75% probability of success and going across multiple time frames to get the same type of lower buying power which we love to do because you you know you're selling naked puts usually lower buying power especially in a margin account and you're getting the delta that you want. Remember, if you're selling around a 30th delta on each one, you're doing it, let's say, two or three times, you're getting 100 deltas, almost 100 deltas on a position instead of just going out and buying a 100 shares of stock, which would use probably the same amount of buying power is the same as a three >> months that you were doing, two or three months you're doing or maybe a little bit more. But that's the way to be intelligent, I think, in a stock that you have a long-term outlook on. 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