lystn

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be answering the question, “Should you manage individual option trades or combine positions in a particular ticker?” Let me just back up and tell you the basis of where this question comes from. If you are getting into laddered entries like we talked about just a couple of days ago in one of the shows here on the daily call, if you’re getting into laddered entries and you’re starting to enter multiple positions in the same ticker, the question is, “Do you manage each of those individual positions one by one or do you manage them together as a combined community?” Let's say you got into position in SPY. Your first position, you took in potential credit of $100. The second position, you took in $120. Now, do you add those two things together and say, “Okay. Now, the combined credit is $220 and I want to take 50% of that.” Or do you take 50% of the first position and 50% of the last. Well, ultimately, it’s your decision, but here's how I would do it. I would still manage each individual position by itself. That's how we built all of our back-testing software. All of our research is based on individual position, not any combined positions. It’s just a very simple way to go about it. Each independent occurrence should act like an independent occurrence for the next ones. And it's also how we built out our auto-trading software because we believe that when you start trying to co-mingle things together, it actually creates the opportunity to start mingling things together that maybe shouldn't be together. If you start making adjustments to one position, does that count for the second position or does that count for the whole thing? If you start rolling contracts, do you include those on the whole roll or just because you rolled half of them, it includes half of the roll? It starts really getting it super, super complicated beyond what it needs to be and you can do just as well and be just as effective if you just manage the individual trades when exiting. Now, does that mean that we don't look at the overall combined position? Of course. When we are looking at our analyze tab and we’re looking at the position, I'm not clicking through and saying, “Okay. This is one iron butterfly and this is another iron butterfly. This is one condor, this is another condor.” I’m looking at the overall payoff diagram for that ticker, but when it comes time to exiting, I might exit one of the positions today and we might actually find that we exit the next position five days later or not at all. We have to adjust that side of it. That's why I think that you have to manage them individually. It does give you an opportunity I think to smooth out your returns. And back-testing wise, the way that we did a lot of research, is we did it on the individual basis because it's a lot simpler to manage and basically to build automation around that versus trying to combine positions. Hopefully that helps out. As always, if you guys have any questions, please let us know. Until next time, happy trading!