tastytrade: Options Jive: Recent Episodes
tastytrade
If you want to trade like a tastytrader, you have to learn how to talk like a tastytrader. Sit down with Tom and Tony as they dish out and discuss popular trading topics that give you an edge when opening, closing and managing your trades.
Today's conversation involves focus on sticky implied volatility despite a large move up in the market last week as well as some talk on the recent uptick in the 30 year to 10 year interest rate spreads.
Today's conversation involves focus on sticky implied volatility despite a large move up in the market last week as well as some talk on the recent uptick in the 30 year to 10 year interest rate spreads.
Volatility and price direction is reverting to a “short term” normalcy, but there are a few assets/prices not changing much. These are the following: Currency IV, Natural Gas IV, Bonds, and the 10y-2y spread.
Volatility and price direction is reverting to a “short term” normalcy, but there are a few assets/prices not changing much. These are the following: Currency IV, Natural Gas IV, Bonds, and the 10y-2y spread.
When trading futures, comparing borrowed capital dollar-for-dollar with traditional margin financing makes futures a much cheaper way to put on the same trade.Even if you are not one to use margin, financing for 2.8% and leaving that cash free for you to use elsewhere can be a valuable concept when diversifying a portfolio.
When trading futures, comparing borrowed capital dollar-for-dollar with traditional margin financing makes futures a much cheaper way to put on the same trade.Even if you are not one to use margin, financing for 2.8% and leaving that cash free for you to use elsewhere can be a valuable concept when diversifying a portfolio.
We’ve found that stock indices tend to not react much on earnings days. So what about trading our go-to option strategy initiated in earnings season? Join Tom and Tony as they analyze the earnings impact on the index’s option strategy performance.
We’ve found that stock indices tend to not react much on earnings days. So what about trading our go-to option strategy initiated in earnings season? Join Tom and Tony as they analyze the earnings impact on the index’s option strategy performance.
At tastylive, we are often looking for high IVR to encourage us to put on trades. How much difference does this make and is the effect different for defined risk vs undefined risk trades? Today, Tom and Tony examine the data to see just what high IVR is worth.
At tastylive, we are often looking for high IVR to encourage us to put on trades. How much difference does this make and is the effect different for defined risk vs undefined risk trades? Today, Tom and Tony examine the data to see just what high IVR is worth.
Anton joins Tom and Tony to recap the last week’s market activity as well as give insight to what to expect in this coming week
Anton joins Tom and Tony to recap the last week’s market activity as well as give insight to what to expect in this coming week
Earnings offer high-risk, high-reward trades due to the sharp change in IV before and after earnings. We’ve seen some significant moves in the past earnings seasons. So, have these earnings moves been outside the expected range? Why do we still sell premium in a highly volatile market?Join Tom and Tony as they analyze the expected move during earnings season.
Earnings offer high-risk, high-reward trades due to the sharp change in IV before and after earnings. We’ve seen some significant moves in the past earnings seasons. So, have these earnings moves been outside the expected range? Why do we still sell premium in a highly volatile market?Join Tom and Tony as they analyze the expected move during earnings season.
Earnings season offers additional credits to premium sellers willing to accept some additional risk. But how much extra risk is and how should our evaluation of IV change around earnings? Today, Tom and Tony explore the data to see how much difference there is between an underlying about to have earnings and one on an average day.
Earnings season offers additional credits to premium sellers willing to accept some additional risk. But how much extra risk is and how should our evaluation of IV change around earnings? Today, Tom and Tony explore the data to see how much difference there is between an underlying about to have earnings and one on an average day.
We often say that short options traders should trade often in order to most likely realize the long-term expected performance of a trade (a consequence of the law of large numbers and central limit theorem). Let’s take a look at short 16Δ SPY strangles, managed at expiration to understand why. Join Tom and Tony as they discuss why we trade often.
We often say that short options traders should trade often in order to most likely realize the long-term expected performance of a trade (a consequence of the law of large numbers and central limit theorem). Let’s take a look at short 16Δ SPY strangles, managed at expiration to understand why. Join Tom and Tony as they discuss why we trade often.
The first earnings season in 2023 is around the corner. So how did our Fear Index VIX react to earnings historically? Do we see significantly higher VIX during the earnings seasons?Join Tom and Tony as they analyze how VIX reacts to earnings seasons historically
The first earnings season in 2023 is around the corner. So how did our Fear Index VIX react to earnings historically? Do we see significantly higher VIX during the earnings seasons?Join Tom and Tony as they analyze how VIX reacts to earnings seasons historically
The last part of placing a trade is arguably the most important. Specifying market order or a limit price can drastically effect our profitability, while stop prices can be used to set up triggers for future trades. Today, Tom and Tony take a moment to review the meanings and purposes behind all the choices we make after we have decided what position we want to buy or sell.
The last part of placing a trade is arguably the most important. Specifying market order or a limit price can drastically effect our profitability, while stop prices can be used to set up triggers for future trades. Today, Tom and Tony take a moment to review the meanings and purposes behind all the choices we make after we have decided what position we want to buy or sell.
We often use IVR and IVP to normalize volatility so it is comparable between assets.Today, join Tom and Tony as they look at why this normalization is important by first comparing the IV indexes of Gold (GVZ), the S&P 500 (VIX), Amazon (VXAZN) and Crude Oil (OVX) and then comparing their IVRs.
We often use IVR and IVP to normalize volatility so it is comparable between assets.Today, join Tom and Tony as they look at why this normalization is important by first comparing the IV indexes of Gold (GVZ), the S&P 500 (VIX), Amazon (VXAZN) and Crude Oil (OVX) and then comparing their IVRs.
The pandemic has completely changed the markets as well as implied volatilities.
We rarely see VIX dip below 20 recently, but this was not the case before 2020.
The pandemic has completely changed the markets as well as implied volatilities.
We rarely see VIX dip below 20 recently, but this was not the case before 2020.
Somedays for an underlying are dull and almost entirely flat. On more interesting days, sometimes there is a tear up or down and sometimes all the ups and downs mostly cancel out. How do these different kinds of days affect our option positions? Today, Tom and Tony check the data to see how days with a high intraday range relative to total price change compare to those with less two sided action.
Somedays for an underlying are dull and almost entirely flat. On more interesting days, sometimes there is a tear up or down and sometimes all the ups and downs mostly cancel out. How do these different kinds of days affect our option positions? Today, Tom and Tony check the data to see how days with a high intraday range relative to total price change compare to those with less two sided action.
Undefined risk strategies, such as short puts or short calls, do not have a known max loss upon trade entry. To gauge how severe the loss of a position will most likely be, traders often use BPR (buying power reduction). Join Tom and Tony as they recap BPR and discuss how likely it is to be exceeded.
Undefined risk strategies, such as short puts or short calls, do not have a known max loss upon trade entry. To gauge how severe the loss of a position will most likely be, traders often use BPR (buying power reduction). Join Tom and Tony as they recap BPR and discuss how likely it is to be exceeded.
Implied volatility rank (IVR) gives context to the current IV in an underlying by comparing it to values over the past year. The conditional value at risk (CVaR) helps form expectations around the risk we take on when selling options by giving an average amongst the worst losers. Today, Tom and Tony examine the data to see if letting IVR determine when are willing to sell premium can improve the CVaR of our trades.
Implied volatility rank (IVR) gives context to the current IV in an underlying by comparing it to values over the past year. The conditional value at risk (CVaR) helps form expectations around the risk we take on when selling options by giving an average amongst the worst losers. Today, Tom and Tony examine the data to see if letting IVR determine when are willing to sell premium can improve the CVaR of our trades.
Tom and Tony discuss why it is that high levels of implied volatility are actually good opportunities for option sellers. Not only is the premium collected larger but the risk of an outlier move was less.
Tom and Tony discuss why it is that high levels of implied volatility are actually good opportunities for option sellers. Not only is the premium collected larger but the risk of an outlier move was less.
Managing winners and managing early at 21DTE both are great mechanics to improve performance. So what are the differences between these two approaches? Join Nick and Mike as they analyze the performances of using managing winners and managing early.
Managing winners and managing early at 21DTE both are great mechanics to improve performance. So what are the differences between these two approaches? Join Nick and Mike as they analyze the performances of using managing winners and managing early.
When a long weekend comes into play, many traders may expect to see a larger expected and realized move to account for the extra day off, but our data shows that this isn't really the case. Tune in to learn more!
When a long weekend comes into play, many traders may expect to see a larger expected and realized move to account for the extra day off, but our data shows that this isn't really the case. Tune in to learn more!
We found random post-earnings market moves even across the highly correlated Nasdaq sector and highly correlated big tech underlyings. One post-earnings stock move does not imply similar moves across other big tech companies that may come out later in the week.
We found random post-earnings market moves even across the highly correlated Nasdaq sector and highly correlated big tech underlyings. One post-earnings stock move does not imply similar moves across other big tech companies that may come out later in the week.
Options have complex risk profiles, so we often have to use a variety of statistics to evaluate it. The two most common metrics we use to evaluate historic risk are P/L standard deviation and P/L CVaR. Join Tom and Tony as they discuss why it’s important to use both standard deviation and CVaR.
Options have complex risk profiles, so we often have to use a variety of statistics to evaluate it. The two most common metrics we use to evaluate historic risk are P/L standard deviation and P/L CVaR. Join Tom and Tony as they discuss why it’s important to use both standard deviation and CVaR.
We’ve known that success rates of selling option premium in indices or individual stocks are better than expected. What about sector ETFs? Do we see similar win rates by selling stocks within the ETFs?
Join Tom and Tony as they analyze the performances of selling strangles in the top 3 stocks in 5 popular sector ETFs.
We’ve known that success rates of selling option premium in indices or individual stocks are better than expected. What about sector ETFs? Do we see similar win rates by selling stocks within the ETFs?
Join Tom and Tony as they analyze the performances of selling strangles in the top 3 stocks in 5 popular sector ETFs.
Short premium traders aim to trade underlyings that have elevated implied volatilities. Since raw implied volatility does not provide a relative measure of volatility elevation and it is not comparable between underlyings, traders will use IVR or IVP. Join Tom and Tony as they discuss the difference between these metrics and the pros and cons of each.
Short premium traders aim to trade underlyings that have elevated implied volatilities. Since raw implied volatility does not provide a relative measure of volatility elevation and it is not comparable between underlyings, traders will use IVR or IVP. Join Tom and Tony as they discuss the difference between these metrics and the pros and cons of each.
Join Tom and Tony as they analyze 10 popular individual stocks in various sectors and check if selling a strangle can achieve high success rate.
Join Tom and Tony as they analyze 10 popular individual stocks in various sectors and check if selling a strangle can achieve high success rate.
Every financial instrument has a unique volatility profile, and certain underlyings are much more prone to large daily moves compared to others. How often do different stocks and ETFs experience daily returns of a large magnitude?
Join Tom and Tony as they compare the rates of large moves for different stocks and ETFs.
Every financial instrument has a unique volatility profile, and certain underlyings are much more prone to large daily moves compared to others. How often do different stocks and ETFs experience daily returns of a large magnitude?
Join Tom and Tony as they compare the rates of large moves for different stocks and ETFs.
This year the market has experienced tremendous volatility. With a decreasing success rate, traders are looking for further protection on top of their risk-defined strategies in order to increase ROC. One solution is to use stop loss mechanics.
Join Tom and Tony as they analyze the performance with and without using stop losses in put spreads.
This year the market has experienced tremendous volatility. With a decreasing success rate, traders are looking for further protection on top of their risk-defined strategies in order to increase ROC. One solution is to use stop loss mechanics.
Join Tom and Tony as they analyze the performance with and without using stop losses in put spreads.
Liquid options markets provide traders with freedom to decide how long to stay in a position. Longer dated options collect higher credits, while options closer to their expirations may turn more rapid profits. Today, Tom and Tony review the data to see how profits and risks compare between the first half and second of a short option position's life cycle.
Liquid options markets provide traders with freedom to decide how long to stay in a position. Longer dated options collect higher credits, while options closer to their expirations may turn more rapid profits. Today, Tom and Tony review the data to see how profits and risks compare between the first half and second of a short option position's life cycle.
This year, investors have become pessimistic due to high market volatility. However, this volatile market could’ve been great for option traders.
Join Tom and Tony as they explain the reasons and analyze the performance of selling options premium in 2022.
This year, investors have become pessimistic due to high market volatility. However, this volatile market could’ve been great for option traders.
Join Tom and Tony as they explain the reasons and analyze the performance of selling options premium in 2022.
When looking to trade options on a commodity or market index, what factors should a trader consider when selecting the underlying product class? Join Tom and Tony as they compare the options for two types of underlying products, ETFs and futures, that track the S&P 500.
When looking to trade options on a commodity or market index, what factors should a trader consider when selecting the underlying product class? Join Tom and Tony as they compare the options for two types of underlying products, ETFs and futures, that track the S&P 500.
Everyday, the U.S. Treasury publishes yield curve data based on the interest rate and market prices of differently dated bonds. This curve can reveal a great deal of information about the market's expectations for future behavior, but bonds can also be very confusing for new traders as price is inversely related to both yield and rates.
Today, Tom and Tony unpack all the inversions to clarify how tastytrader's can interpret the yield curve.
Everyday, the U.S. Treasury publishes yield curve data based on the interest rate and market prices of differently dated bonds. This curve can reveal a great deal of information about the market's expectations for future behavior, but bonds can also be very confusing for new traders as price is inversely related to both yield and rates.
Today, Tom and Tony unpack all the inversions to clarify how tastytrader's can interpret the yield curve.
Anton from the Research Team joins Tom and Tony live on air to review the market from last week as well as give an overview of what is expected this week!
Anton from the Research Team joins Tom and Tony live on air to review the market from last week as well as give an overview of what is expected this week!
We often discuss the importance of limiting the amount of portfolio capital allocated to short premium positions due to their unlikely tail risk. A consequence of this guideline is that certain underlyings or strategies may be off limits to people with certain account sizes. Join Tom and Tony as they discuss approximately how big an account should be, at minimum, to trade different types of short SPY options.
We often discuss the importance of limiting the amount of portfolio capital allocated to short premium positions due to their unlikely tail risk. A consequence of this guideline is that certain underlyings or strategies may be off limits to people with certain account sizes. Join Tom and Tony as they discuss approximately how big an account should be, at minimum, to trade different types of short SPY options.
This year’s significant market correction forced many traders to rethink their strategies, especially risk control. The stop loss is a traditional way to reduce tail risk. So is this an effective way to improve the performance overall and in market downturns?Join Tom and Tony as they analyze the performance with and without using stop losses.
This year’s significant market correction forced many traders to rethink their strategies, especially risk control. The stop loss is a traditional way to reduce tail risk. So is this an effective way to improve the performance overall and in market downturns?Join Tom and Tony as they analyze the performance with and without using stop losses.
For a short premium portfolio that can accept some undefined risk but does not have a strong directional assumption, short strangles are the natural choice of core positions. Deciding how far out of the money to place your strikes can have a dramatic effect on both profitability and risk. Today, Tom and Tony examine the data to see how different delta strangles have performed historically, so that we can be informed when deciding how to structure our upcoming trades.
For a short premium portfolio that can accept some undefined risk but does not have a strong directional assumption, short strangles are the natural choice of core positions. Deciding how far out of the money to place your strikes can have a dramatic effect on both profitability and risk. Today, Tom and Tony examine the data to see how different delta strangles have performed historically, so that we can be informed when deciding how to structure our upcoming trades.
For the last two elections, /ES ranges for the day after election day were not outliers.Implied volatility decreased significantly on the day after election day for the last two elections.
For the last two elections, /ES ranges for the day after election day were not outliers.Implied volatility decreased significantly on the day after election day for the last two elections.
The gambler’s fallacy can hurt short premium traders when we over-allocate our portfolio during a time where our research tells us we should allocate less. To avoid being over-allocated at the wrong time, follow sizing mechanics based on IV even if you have been winning significantly more than losing (or vice versa). This is easier said than done and is one of the hardest (if not the hardest) things to master as a trader.
The gambler’s fallacy can hurt short premium traders when we over-allocate our portfolio during a time where our research tells us we should allocate less. To avoid being over-allocated at the wrong time, follow sizing mechanics based on IV even if you have been winning significantly more than losing (or vice versa). This is easier said than done and is one of the hardest (if not the hardest) things to master as a trader.
Yield curve spreads can be used to trade the spreads between interest rates. These speculative trades can be used to capitalize on suspected changes in the shape of the yield curve and the anticipated strength of the economy.
Join Tom and Tony as they overview some commonly traded yield curve spreads, TUT and NOB spreads.
Yield curve spreads can be used to trade the spreads between interest rates. These speculative trades can be used to capitalize on suspected changes in the shape of the yield curve and the anticipated strength of the economy.
Join Tom and Tony as they overview some commonly traded yield curve spreads, TUT and NOB spreads.
The definition of a spread trade is broad and goes as follows:
“In finance a spread refers to the difference between two prices, rates or yields. Spreads are used for speculation and are generally designed to: limit directional risk, lower capital requirements, extend position duration, and reduce portfolio volatility.”
Tom and Tony dig deeper into what this means and the so many different ways spreads are used in trading. This is a valuable segment to watch for any experience level as it is a key concept that is used in all aspects of trading. Hope you enjoy!
The definition of a spread trade is broad and goes as follows:
“In finance a spread refers to the difference between two prices, rates or yields. Spreads are used for speculation and are generally designed to: limit directional risk, lower capital requirements, extend position duration, and reduce portfolio volatility.”
Tom and Tony dig deeper into what this means and the so many different ways spreads are used in trading. This is a valuable segment to watch for any experience level as it is a key concept that is used in all aspects of trading. Hope you enjoy!
In an efficient market, the fair price of calls determines the fair price of puts. This can be seen by constructing synthetic positions with identical payoffs, if these had different prices it would ben arbitrage! Today, Tom and Tony unpack what Put-Call parity is and what it means for our trading decisions.
In an efficient market, the fair price of calls determines the fair price of puts. This can be seen by constructing synthetic positions with identical payoffs, if these had different prices it would ben arbitrage! Today, Tom and Tony unpack what Put-Call parity is and what it means for our trading decisions.
Despite a lot of market volatility (realized), market IV has not gone up since January.The reason for this may be due to the spread between IV and HV already being rich coming into this year.
Despite a lot of market volatility (realized), market IV has not gone up since January.The reason for this may be due to the spread between IV and HV already being rich coming into this year.
With /MET and /MBT (Micro Bitcoin Futures) listing options, we need to assess if the options are tradable. Out of the two, /MBT seems to have the more tradable options since the credits on a strangle could reach $100 or more per contract, whereas /MET sees a credit of around $10 or less for the same strategy. Mind the liquidity on these options. Getting filled closer to mid-price would be necessary for these options to be considered liquid.
With /MET and /MBT (Micro Bitcoin Futures) listing options, we need to assess if the options are tradable. Out of the two, /MBT seems to have the more tradable options since the credits on a strangle could reach $100 or more per contract, whereas /MET sees a credit of around $10 or less for the same strategy. Mind the liquidity on these options. Getting filled closer to mid-price would be necessary for these options to be considered liquid.
International markets are important to many traders. So how do they perform this year as well as over the long term? Do they move together all the time? What about in a bull and bear market?
Join Tom and Tony as they explore what the correlations are between international ETFs and S&P 500 and how they react to different markets.
International markets are important to many traders. So how do they perform this year as well as over the long term? Do they move together all the time? What about in a bull and bear market?
Join Tom and Tony as they explore what the correlations are between international ETFs and S&P 500 and how they react to different markets.
The U.S. Treasury sets the rates for the most widely used bonds in the world. If issuing bonds with higher rates means the bonds are better, why does that drive down the price of bonds on the market? Today, Tom and Tony clear up this common confusion and highlight the inverse relationship between bond prices and rates.
The U.S. Treasury sets the rates for the most widely used bonds in the world. If issuing bonds with higher rates means the bonds are better, why does that drive down the price of bonds on the market? Today, Tom and Tony clear up this common confusion and highlight the inverse relationship between bond prices and rates.
Even with all of the volatility seen in the past month, the markets remain well within their expected move ranges. With earnings season really getting under way, can we expect the same thing for the next month?
Even with all of the volatility seen in the past month, the markets remain well within their expected move ranges. With earnings season really getting under way, can we expect the same thing for the next month?
Weekly options sound appealing because the premium depreciates much faster in the last days of the expiration cycle. In a high IV market like this year, it becomes even more attractive.
Join Tom and Tony as they analyze the performance of weekly options.
Weekly options sound appealing because the premium depreciates much faster in the last days of the expiration cycle. In a high IV market like this year, it becomes even more attractive.
Join Tom and Tony as they analyze the performance of weekly options.
Deciding how to manage trades as we move through earnings season can make all the difference to an active trader looking to profit from the high credits. But what can we expect from underlyings after earnings?
Tom and Tony examine the data to see how often stocks continue with their earnings moves during the following week.
Deciding how to manage trades as we move through earnings season can make all the difference to an active trader looking to profit from the high credits. But what can we expect from underlyings after earnings?
Tom and Tony examine the data to see how often stocks continue with their earnings moves during the following week.
Trading options offer clear opportunities using short premium that do not require directional bias to be correct. When trading short premium strategies, there is the potential to profit from not only the price movement of the underlying, but also the change in implied volatility and time decay.
Trading options offer clear opportunities using short premium that do not require directional bias to be correct. When trading short premium strategies, there is the potential to profit from not only the price movement of the underlying, but also the change in implied volatility and time decay.
It is relatively difficult to sell premiums in bond products due to their low implied volatilities. However, this year, TLT’ IV has gone up significantly, trading above the average level 100% of the time!
So is this a great time to sell premiums in bond products?
Join Tom and Tony as they analyze the performance of selling TLT Strangles.
It is relatively difficult to sell premiums in bond products due to their low implied volatilities. However, this year, TLT’ IV has gone up significantly, trading above the average level 100% of the time!
So is this a great time to sell premiums in bond products?
Join Tom and Tony as they analyze the performance of selling TLT Strangles.
Earnings announcements are often followed by large underlying moves. In principle, the increased implied volatility should account for this and the frequency of realized moves being one or two times the expected move should remain stable. Today, Tom and Tony look at a mountain of data, examining all the components of the S&P 500 to see if this holds or if we should further adjust our expectations around earnings.
Earnings announcements are often followed by large underlying moves. In principle, the increased implied volatility should account for this and the frequency of realized moves being one or two times the expected move should remain stable. Today, Tom and Tony look at a mountain of data, examining all the components of the S&P 500 to see if this holds or if we should further adjust our expectations around earnings.
With IV being high across all major asset classes, the current premium opportunity is equally rich in all of them. The realized risk over the last 30 days has been significantly less than what IV priced in which aligns with what our research suggests when IV is high.
With IV being high across all major asset classes, the current premium opportunity is equally rich in all of them. The realized risk over the last 30 days has been significantly less than what IV priced in which aligns with what our research suggests when IV is high.
SPX and /ES both track S&P’s performance. But why are /ES and SPX different prices? What causes the discrepancy? Is /ES priced higher more often or is the opposite scenario?
Join Tom and Tony as they explain the price discrepancy between the /ES and SPX prices.
SPX and /ES both track S&P’s performance. But why are /ES and SPX different prices? What causes the discrepancy? Is /ES priced higher more often or is the opposite scenario?
Join Tom and Tony as they explain the price discrepancy between the /ES and SPX prices.
Outlier moves pose a danger to short premium traders yet lead to periods of high IV that can be ideal times from selling options. Obviously we would like to better understand outlier moves, but outlier moves are by definition rare, so how can we find enough of them to learn from them? Today, Tom and Tony look at data from all of the components of the S&P 500 in order to come to robust observations about the effects of these outlier moves.
Outlier moves pose a danger to short premium traders yet lead to periods of high IV that can be ideal times from selling options. Obviously we would like to better understand outlier moves, but outlier moves are by definition rare, so how can we find enough of them to learn from them? Today, Tom and Tony look at data from all of the components of the S&P 500 in order to come to robust observations about the effects of these outlier moves.
Despite equities and bonds being at relative lows, IV for both is not any higher today than it was months ago for both bonds and stocks… in other words, there is no added fear in the market despite price continuing to selloff.
Despite equities and bonds being at relative lows, IV for both is not any higher today than it was months ago for both bonds and stocks… in other words, there is no added fear in the market despite price continuing to selloff.
Traders constantly look for strategies that can achieve high returns such as small Iron Condors which provide over 100% annualized ROC theoretically. However, the realized long-term performance of these strategies is not even close to what we’d expect. What causes such a big gap between expected and realized return?Join Tom and Tony as they discuss the reasons as well as solutions to improve these strategies’ performance.
Traders constantly look for strategies that can achieve high returns such as small Iron Condors which provide over 100% annualized ROC theoretically. However, the realized long-term performance of these strategies is not even close to what we’d expect. What causes such a big gap between expected and realized return?Join Tom and Tony as they discuss the reasons as well as solutions to improve these strategies’ performance.
At tastytrade, we often set up our short premium positions by looking at the implied volatility and the expected move in the underlying. But how reliable is that expected move, and how do outlier days cluster or space out on the calendar. Today, Tom and Tony look into the data for how outlier move days in ETFs have been distributed over the past half decade.
At tastytrade, we often set up our short premium positions by looking at the implied volatility and the expected move in the underlying. But how reliable is that expected move, and how do outlier days cluster or space out on the calendar. Today, Tom and Tony look into the data for how outlier move days in ETFs have been distributed over the past half decade.
Anton joins Tom and Tony to provide context about the huge price swings and down moves that the equity markets experienced last week. The move last week ranks among the top 99th. percentile for 4-day selloffs, but market volatility (the fear factor) was more calm than expected.
Anton joins Tom and Tony to provide context about the huge price swings and down moves that the equity markets experienced last week. The move last week ranks among the top 99th. percentile for 4-day selloffs, but market volatility (the fear factor) was more calm than expected.
One of the most significant risks to premium sellers is the directional risk. A neutral strategy would benefit the most from the decreasing volatility without underlying price movement. Unfortunately, the underlying price constantly moves, so let’s analyze how much the directional risk impacts our profitability across different strategies.
One of the most significant risks to premium sellers is the directional risk. A neutral strategy would benefit the most from the decreasing volatility without underlying price movement. Unfortunately, the underlying price constantly moves, so let’s analyze how much the directional risk impacts our profitability across different strategies.
Wild markets are a time of increased profitability and increased risk. When those large daily moves come, it can feel like they happen very rapidly. Today, Jacob joins Tom to check the data and see how large daily moves have been spaced out on the calendar.
Wild markets are a time of increased profitability and increased risk. When those large daily moves come, it can feel like they happen very rapidly. Today, Jacob joins Tom to check the data and see how large daily moves have been spaced out on the calendar.
At tasty, we often look at a number of statistics for the various strategies we conduct studies on.We focus on average and median P/L, outlier losses (often using conditional value at risk, or CVaR), and win rates. Another metric that we often include, but may be harder to interpret, is P/L volatility.In today’s segment, let’s dive into what P/L volatility is and how traders can utilize it!
At tasty, we often look at a number of statistics for the various strategies we conduct studies on.We focus on average and median P/L, outlier losses (often using conditional value at risk, or CVaR), and win rates. Another metric that we often include, but may be harder to interpret, is P/L volatility.In today’s segment, let’s dive into what P/L volatility is and how traders can utilize it!
If we want to scale up in trading risk-defined strategies such as iron condors or spreads, should we consider widening the width of wings or increasing the number of contracts? What are the pros and cons of doing either way?
Join Tom and Tony as they discuss risk-defined strategies and answer these questions!
If we want to scale up in trading risk-defined strategies such as iron condors or spreads, should we consider widening the width of wings or increasing the number of contracts? What are the pros and cons of doing either way?
Join Tom and Tony as they discuss risk-defined strategies and answer these questions!
The most tastytrade of all trades is to sell premium in high volatility and wait for volatility to mean-revert. How quickly does volatility actually move though? Today, Tom and Tony dive into the data to see just what sort of changes volatility tends to experience day-to-day.
The most tastytrade of all trades is to sell premium in high volatility and wait for volatility to mean-revert. How quickly does volatility actually move though? Today, Tom and Tony dive into the data to see just what sort of changes volatility tends to experience day-to-day.
Investors and traders alike have struggled to find safety during 2022, with volatility remaining high as the market continues its path lower.This has led investors to funnel into a newer breed of product which provides them with the opportunity to mitigate risk in exchange for a smaller reward. These products, known as “buffer funds”, claim to guard against investor losses, up to a certain point, while limiting potential gains.So far, roughly $6 billion dollars have been allocated to buffer funds, nearly doubling the amount last year, and it is likely to increase further.So what exactly are buffer funds and do they really work?
Investors and traders alike have struggled to find safety during 2022, with volatility remaining high as the market continues its path lower.This has led investors to funnel into a newer breed of product which provides them with the opportunity to mitigate risk in exchange for a smaller reward. These products, known as “buffer funds”, claim to guard against investor losses, up to a certain point, while limiting potential gains.So far, roughly $6 billion dollars have been allocated to buffer funds, nearly doubling the amount last year, and it is likely to increase further.So what exactly are buffer funds and do they really work?
For risk-undefined strategies, there are two choices to Scale up:Trade more → Increase the number of contractsTrade bigger → Increase the potential reward/risk Does one of these choices make more sense than the other?Join Tom and Tony as they discuss how to scale up if traders have more capital to invest.
For risk-undefined strategies, there are two choices to Scale up:Trade more → Increase the number of contractsTrade bigger → Increase the potential reward/risk Does one of these choices make more sense than the other?Join Tom and Tony as they discuss how to scale up if traders have more capital to invest.
Ratio spreads are created through a combination of long and short puts or calls.Front ratio spreads are an excellent strategy for traders looking for a high-probability, omni-directional trade. On the other side, back ratio spreads are a more capital efficient strategy to replace short or long stock in an account.In today’s segment, we focus on front ratio spreads since they are more aligned with the strategies previously discussed.
Ratio spreads are created through a combination of long and short puts or calls.Front ratio spreads are an excellent strategy for traders looking for a high-probability, omni-directional trade. On the other side, back ratio spreads are a more capital efficient strategy to replace short or long stock in an account.In today’s segment, we focus on front ratio spreads since they are more aligned with the strategies previously discussed.
The far OTM strategy has a small chance of being ITM, does this mean it also has a low BP expansion risk? Join Tom and Tony as they discuss the tradeoff of using the high probability of profit strategies.
The far OTM strategy has a small chance of being ITM, does this mean it also has a low BP expansion risk? Join Tom and Tony as they discuss the tradeoff of using the high probability of profit strategies.
Anton from the Research Team at tastytrade joins Tom and Tony LIVE to show how efficient markets result in an easy way to change your POP, expected profit, and amount risked on the trade.The POP on any trade must be directly proportional to the amount of money at risk relative to the amount of money you stand to make... the larger the POP, the larger the risk must be for the same potential return.
Anton from the Research Team at tastytrade joins Tom and Tony LIVE to show how efficient markets result in an easy way to change your POP, expected profit, and amount risked on the trade.The POP on any trade must be directly proportional to the amount of money at risk relative to the amount of money you stand to make... the larger the POP, the larger the risk must be for the same potential return.
We showed that the realized time decay curve is very close to the theoretical prediction for at-the-money SPY options. What about the OTM options that we trade the most?Join Tom and Tony as they discuss the time value decay across varying deltas.
We showed that the realized time decay curve is very close to the theoretical prediction for at-the-money SPY options. What about the OTM options that we trade the most?Join Tom and Tony as they discuss the time value decay across varying deltas.
After explaining naked options and vertical spreads, let’s move on to one of the most popular strategies here at tastytrade, the short strangle.A short strangle is often used due to the high probability of profit, management options, and lack of directional bias.Short strangles are very customizable, allowing traders to adjust their risk/reward parameters to what fits their preferences.
After explaining naked options and vertical spreads, let’s move on to one of the most popular strategies here at tastytrade, the short strangle.A short strangle is often used due to the high probability of profit, management options, and lack of directional bias.Short strangles are very customizable, allowing traders to adjust their risk/reward parameters to what fits their preferences.
This week's Research Corner described the story of implied volatility for nearly all assets increasing by 20% over the last couple weeks, while equity implied volatility only creeping up 10% over the last week. Watch to get Tom and Tony's take on this interesting move.
This week's Research Corner described the story of implied volatility for nearly all assets increasing by 20% over the last couple weeks, while equity implied volatility only creeping up 10% over the last week. Watch to get Tom and Tony's take on this interesting move.
In this segment, we learn to calculate and understand implied volatility adjusted notional value and use it in context of risk/reward comparison. If you have a price and an implied volatility for two different underlyings, how can you fairly compare the risk of those two underlyings? We show that not only is it easy to do, but you can prove the efficiency of markets in the process!
In this segment, we learn to calculate and understand implied volatility adjusted notional value and use it in context of risk/reward comparison. If you have a price and an implied volatility for two different underlyings, how can you fairly compare the risk of those two underlyings? We show that not only is it easy to do, but you can prove the efficiency of markets in the process!
Theoretically, an at-the-money option’s price should depreciate toward expiration, accelerating in the last month.Does this hold true in actual trading?Join Tom and Tony as they discuss the time value decay in Puts and Calls.
Theoretically, an at-the-money option’s price should depreciate toward expiration, accelerating in the last month.Does this hold true in actual trading?Join Tom and Tony as they discuss the time value decay in Puts and Calls.
In the last episode, we discussed naked puts and calls as they are the starting point for understanding all other strategies.One of the tradeoffs of naked options is the undefined risk profile. For many investors with smaller accounts, this type of risk and buying power requirement may not be feasible.This is where vertical spreads come into play. As an alternative to the naked put and call, vertical spreads offer similar trades to be placed at a fraction of the buying power requirement.
In the last episode, we discussed naked puts and calls as they are the starting point for understanding all other strategies.One of the tradeoffs of naked options is the undefined risk profile. For many investors with smaller accounts, this type of risk and buying power requirement may not be feasible.This is where vertical spreads come into play. As an alternative to the naked put and call, vertical spreads offer similar trades to be placed at a fraction of the buying power requirement.
Get ready for this week's Research Corner! Anton joins Tom and Tony with research-driven statistics.
Get ready for this week's Research Corner! Anton joins Tom and Tony with research-driven statistics.
VIX is trading around 23%, lower than its average since the beginning of the pandemic. Is it a good idea to buy the volatility while we are experiencing extreme levels of negative market sentiment? Find out in today's segment as Tom and Tony discuss whether it is a good idea to get long volatility now.
VIX is trading around 23%, lower than its average since the beginning of the pandemic. Is it a good idea to buy the volatility while we are experiencing extreme levels of negative market sentiment? Find out in today's segment as Tom and Tony discuss whether it is a good idea to get long volatility now.
Option traders have a wide range of possible trades to express their assumptions on the market. If you think that the price of XYZ is going to be stable, how do you decide between selling a strangle or an iron condor? Today, Tom and Tony explore the data to see how these two delta neutral strategies compare when held up side by side.
Option traders have a wide range of possible trades to express their assumptions on the market. If you think that the price of XYZ is going to be stable, how do you decide between selling a strangle or an iron condor? Today, Tom and Tony explore the data to see how these two delta neutral strategies compare when held up side by side.
The VIX has been moving in a wide range since the end of last year, much higher than the historical average. This makes the premium-selling strategies extremely attractive especially strangles and straddles due to their rich premium and fast theta decay. So which one to choose? Join Tom and Tony as they discuss the pros and cons of these two great strategies.
The VIX has been moving in a wide range since the end of last year, much higher than the historical average. This makes the premium-selling strategies extremely attractive especially strangles and straddles due to their rich premium and fast theta decay. So which one to choose? Join Tom and Tony as they discuss the pros and cons of these two great strategies.
tastytraders often rely on the inverse relationship between price and volatility when constructing their positions. But how strong is this relationship and how strong is the evidence for it? Should we be worried that we are conflating this anticorrelation with a positive correlation between volatility and the size of the price move; moves to the downside tend to be larger after all. Today, Tom and Tony look at the data to set this question to bed and see how meme stocks might differ from typical underlyings.
tastytraders often rely on the inverse relationship between price and volatility when constructing their positions. But how strong is this relationship and how strong is the evidence for it? Should we be worried that we are conflating this anticorrelation with a positive correlation between volatility and the size of the price move; moves to the downside tend to be larger after all. Today, Tom and Tony look at the data to set this question to bed and see how meme stocks might differ from typical underlyings.
The indices have entered a so-called “bear market” since this June, down more than 24% from the peak. It is the third largest pullback since the 2008 financial crisis.
So how is the current market compared to 2008 and 2020 regarding the underlying movement and implied volatility change?
Join Tom and Tony as they discuss the current market situation by analyzing the two significant market corrections in 2008 and 2020
The indices have entered a so-called “bear market” since this June, down more than 24% from the peak. It is the third largest pullback since the 2008 financial crisis.
So how is the current market compared to 2008 and 2020 regarding the underlying movement and implied volatility change?
Join Tom and Tony as they discuss the current market situation by analyzing the two significant market corrections in 2008 and 2020
tastytrade mechanics involve managing trades early in order to free up buying power and make more trades in the same timespan. This management is typically based on the remaining duration of the trade, locking in winners, or getting out of losers. But what happens if we combine these various management techniques? Today, Tom and Tony delve into the data to see the results from a variety of different management styles.
tastytrade mechanics involve managing trades early in order to free up buying power and make more trades in the same timespan. This management is typically based on the remaining duration of the trade, locking in winners, or getting out of losers. But what happens if we combine these various management techniques? Today, Tom and Tony delve into the data to see the results from a variety of different management styles.
Traders have started to worry about the potential long-term bear market and the right strategy to hedge against their portfolios. Instead of selling calls which provides limited protections, traders look for more aggressive hedging strategies, such as buying puts. Is this a good idea?Join Tom and Tony as they discuss this strategy.
Traders have started to worry about the potential long-term bear market and the right strategy to hedge against their portfolios. Instead of selling calls which provides limited protections, traders look for more aggressive hedging strategies, such as buying puts. Is this a good idea?Join Tom and Tony as they discuss this strategy.
tastytrade research often focuses on the percentage of winning trades. But how much winning do those winners actually do? Today, Tom and Tony dive into the data to see just how much of the initial credit tastytraders get to take home.
tastytrade research often focuses on the percentage of winning trades. But how much winning do those winners actually do? Today, Tom and Tony dive into the data to see just how much of the initial credit tastytraders get to take home.
Get ready for this week's Research Corner! Anton joins Tom and Tony with research-driven statistics including: correlations, expected moves, implied volatility overstatement, historical volatilities, pairs trades expected moves, and price ranks.
Get ready for this week's Research Corner! Anton joins Tom and Tony with research-driven statistics including: correlations, expected moves, implied volatility overstatement, historical volatilities, pairs trades expected moves, and price ranks.
The Term Structure of VIX measures traders’ perceptions of 30-day volatility X days in the future.
The term structure for indices such as SPX is usually upward sloping, which is called contango. But sometimes, we find the opposite scenario with downward sloping.
Join Tom and Tony as they discuss contango and backwardation and how often we have seen backwardation this year so far?
The Term Structure of VIX measures traders’ perceptions of 30-day volatility X days in the future.
The term structure for indices such as SPX is usually upward sloping, which is called contango. But sometimes, we find the opposite scenario with downward sloping.
Join Tom and Tony as they discuss contango and backwardation and how often we have seen backwardation this year so far?
The BPR for a short option trade is how much capital the brokerage reserves to cover potential losses. But how often does it really come to that? Today, Tony and Nick dive into the data to see just how often we lose how much of the BPR, contrasting a range of underlying's and strategies.
The BPR for a short option trade is how much capital the brokerage reserves to cover potential losses. But how often does it really come to that? Today, Tony and Nick dive into the data to see just how often we lose how much of the BPR, contrasting a range of underlying's and strategies.
Due to the unique nature of the VXX, its price has been in a downtrend over 80% of the time. So would selling the VXX since its inception have been the greatest short of all time?Join Tom and Tony as they discuss whether shorting VXX is a bulletproof trading idea.
Due to the unique nature of the VXX, its price has been in a downtrend over 80% of the time. So would selling the VXX since its inception have been the greatest short of all time?Join Tom and Tony as they discuss whether shorting VXX is a bulletproof trading idea.
The level of volatility is perhaps the most important feature of the market to tastytraders. Adapting our trading mechanics to different volatility environments is a key step to staying active in the market and capitalizing on opportunities to sell premium. Today, Tom and Tony look at the data on how the relationship between strikes and deltas changes as volatility increases.
The level of volatility is perhaps the most important feature of the market to tastytraders. Adapting our trading mechanics to different volatility environments is a key step to staying active in the market and capitalizing on opportunities to sell premium. Today, Tom and Tony look at the data on how the relationship between strikes and deltas changes as volatility increases.
The BPR (Buying Power Requirement) is priced based on the position’s risk level. The higher the risk, the higher the BPR.Many factors can impact a position’s BPR, so today, let’s look at a case study of how the BPR of a naked put changes in both up and down markets. Join Tom and Tony as they analyze an interesting case study.
The BPR (Buying Power Requirement) is priced based on the position’s risk level. The higher the risk, the higher the BPR.Many factors can impact a position’s BPR, so today, let’s look at a case study of how the BPR of a naked put changes in both up and down markets. Join Tom and Tony as they analyze an interesting case study.
The BPR (buying power requirement) is crucial to option traders because it is part of the calculation to get potential ROC.The option’s BPR calculation, especially for naked positions, is more complex than the stocks, but understanding the key components is sufficient for traders to measure the risks.Join Tom and Tony as they discuss the key components of a naked position’s BPR and why understanding it is important.
The BPR (buying power requirement) is crucial to option traders because it is part of the calculation to get potential ROC.The option’s BPR calculation, especially for naked positions, is more complex than the stocks, but understanding the key components is sufficient for traders to measure the risks.Join Tom and Tony as they discuss the key components of a naked position’s BPR and why understanding it is important.
Increased volatility preceding earnings announcements can provide tastytraders with additional opportunities to sell premium, but how far before earnings does volatility become elevated and how reliably does volatility come back down after earnings?
Today, Tom and Tony dive into the data to get to explore these questions and see how we can incorporate these lessons into our earnings strategies.
Increased volatility preceding earnings announcements can provide tastytraders with additional opportunities to sell premium, but how far before earnings does volatility become elevated and how reliably does volatility come back down after earnings?
Today, Tom and Tony dive into the data to get to explore these questions and see how we can incorporate these lessons into our earnings strategies.
The SKEW index measures the tail risk by using out-of-the-money SPX options. So what determines its value and how well it can predict the market corrections?Join Tom and Tony as they discuss these questions.
The SKEW index measures the tail risk by using out-of-the-money SPX options. So what determines its value and how well it can predict the market corrections?Join Tom and Tony as they discuss these questions.
Options give traders tremendous flexibility for shaping positions to fit with market assumptions. Even with identical degrees of directional exposure, or deltas, there are a wide range of option strategies that reflect the same opinion on the underlying. Join Tom and Tony as they dive into the data and see what separates one 10 delta vertical from another.
Options give traders tremendous flexibility for shaping positions to fit with market assumptions. Even with identical degrees of directional exposure, or deltas, there are a wide range of option strategies that reflect the same opinion on the underlying. Join Tom and Tony as they dive into the data and see what separates one 10 delta vertical from another.
Over the last two weeks, we saw actual market action be way less volatile than what was priced by implied volatility. We also see equity market put skew return to above normal levels, with out of the money puts being priced around three times that of the out of the money calls.
Over the last two weeks, we saw actual market action be way less volatile than what was priced by implied volatility. We also see equity market put skew return to above normal levels, with out of the money puts being priced around three times that of the out of the money calls.
A jade lizard is a slightly bullish strategy that combines a short OTM put and an OTM call spread. It has no upside risk with a total credit greater than the width of the short call spread.Why did we create this three-leg strategy while most options strategies have two or four legs?Join Tom and Tony as they discuss why we created the Jade Lizard strategy and how it takes advantage of the IV skew.
A jade lizard is a slightly bullish strategy that combines a short OTM put and an OTM call spread. It has no upside risk with a total credit greater than the width of the short call spread.Why did we create this three-leg strategy while most options strategies have two or four legs?Join Tom and Tony as they discuss why we created the Jade Lizard strategy and how it takes advantage of the IV skew.
As premium sellers our main goal is to not go bust. The math behind premium selling should work out in the end where we may have positive expectation. Historically, selling premium has been profitable over time, but that does not guarantee that short premium will generate a profit in the short term. To have the best chance at realizing positive expectation: trade small, trade often, and let the math work.
As premium sellers our main goal is to not go bust. The math behind premium selling should work out in the end where we may have positive expectation. Historically, selling premium has been profitable over time, but that does not guarantee that short premium will generate a profit in the short term. To have the best chance at realizing positive expectation: trade small, trade often, and let the math work.
Selling premium when IV is high is a core tenet for tastytraders, but what is "high IV"?
Implied volatility rank and implied volatility percentile give two ways to contextualize current IV and judge if it is time to make a trade. But what happens when they disagree? Today, Tom and Tony examine the data to see how short premium strategies have faired in times when IVR and IVP diverge.
Selling premium when IV is high is a core tenet for tastytraders, but what is "high IV"?
Implied volatility rank and implied volatility percentile give two ways to contextualize current IV and judge if it is time to make a trade. But what happens when they disagree? Today, Tom and Tony examine the data to see how short premium strategies have faired in times when IVR and IVP diverge.
Premium sellers are constantly seeking high-theta trades in order to increase their daily income. But there are some risks associated with it. So what are the possible solutions to improving our daily theta decay without too many side effects? Join Tom and Tony to find out!
Premium sellers are constantly seeking high-theta trades in order to increase their daily income. But there are some risks associated with it. So what are the possible solutions to improving our daily theta decay without too many side effects? Join Tom and Tony to find out!
Beta is a unique Greek. Rather than being derived from the Black-Scholes model, it is computed using historical regressions to find the linear relationship between given underlyings and market benchmarks. Today, Tom and Tony look at the data to see how much beta has varied over the years and get an idea of how reliable these correlations really are.
Beta is a unique Greek. Rather than being derived from the Black-Scholes model, it is computed using historical regressions to find the linear relationship between given underlyings and market benchmarks. Today, Tom and Tony look at the data to see how much beta has varied over the years and get an idea of how reliable these correlations really are.
IV today seems to be partially affected by what the IV vs. the actual move was in the previous time period. Forward IV seems to be very flat, suggesting that the short term IV environment is the same as longer term.
IV today seems to be partially affected by what the IV vs. the actual move was in the previous time period. Forward IV seems to be very flat, suggesting that the short term IV environment is the same as longer term.
Theta, by definition, is a measure of the rate of decline in the value of an option due to the passage of time. Theta value increases when the expiration date is close and the stock price is close to the ATM strike. But at the same time, the Gamma risk increases too. Join Tom and Tony as they discuss Theta and why traders should not try to catch high Theta value.
Theta, by definition, is a measure of the rate of decline in the value of an option due to the passage of time. Theta value increases when the expiration date is close and the stock price is close to the ATM strike. But at the same time, the Gamma risk increases too. Join Tom and Tony as they discuss Theta and why traders should not try to catch high Theta value.
One of the wonderful things about options is that, no matter what assumptions traders bring to the market, they can construct strategies to profit if they are correct. The typical delta neutral strategies, strangles and iron condors, profit should the underlying remain stable, but if you believe the underlying is going to move but don’t want to pick a direction, there is a trade for you: the double backspread. Today, Tom and Tony explain this rarely used strategy, why it is so rarely employed, and look at the data to see if it is ever a good idea.
One of the wonderful things about options is that, no matter what assumptions traders bring to the market, they can construct strategies to profit if they are correct. The typical delta neutral strategies, strangles and iron condors, profit should the underlying remain stable, but if you believe the underlying is going to move but don’t want to pick a direction, there is a trade for you: the double backspread. Today, Tom and Tony explain this rarely used strategy, why it is so rarely employed, and look at the data to see if it is ever a good idea.
With implied volatility, and a short term expected move dropping off, our puts quickly regained a lot of their skew. Last week we realized movement was well within what was expected, so this decline in volatility makes sense.
With implied volatility, and a short term expected move dropping off, our puts quickly regained a lot of their skew. Last week we realized movement was well within what was expected, so this decline in volatility makes sense.
Gamma risk describes the situation when the Gamma value becomes too high, implying the rate of delta change might be out of control, exposing our positions to considerable directional risk. So what are the reasons that cause high Gamma value?Join Tom and Tony as they explain how.
Gamma risk describes the situation when the Gamma value becomes too high, implying the rate of delta change might be out of control, exposing our positions to considerable directional risk. So what are the reasons that cause high Gamma value?Join Tom and Tony as they explain how.
Option trading accounts are limited in how many and what kind of positions they can have on by their total buying power. Trades with undefined risk often require brokerages to set aside large portions of capital from the account in order to cover potential losses. Today, Tom and Tony take a look at the minimum BPR requirements for undefined risk trades as set forth by FINRA and find the strikes which let us collect large credits with minimal stakes.
Option trading accounts are limited in how many and what kind of positions they can have on by their total buying power. Trades with undefined risk often require brokerages to set aside large portions of capital from the account in order to cover potential losses. Today, Tom and Tony take a look at the minimum BPR requirements for undefined risk trades as set forth by FINRA and find the strikes which let us collect large credits with minimal stakes.
Puts and calls in indexes of the same delta are trading for essentially the same price suggesting the skew has flattened. QQQ 16∆ calls are actually more expensive than the 16∆ puts. Although last week was extraordinarily volatile on a day-to-day basis, monthly volatility actually declined
Calculating the breakeven stock price of a single option is straightforward: it’s merely the price of the underlying that gives the position a P/L of zero. However, it can be very tricky to calculate the breakeven stock price for more complex strategies, such as laddered puts. Join Tom, Tony, Julia and Jim as they discuss a simple-ish ways to numerically solve for the breakeven stock price of a laddered put.
Calculating the breakeven stock price of a single option is straightforward: it’s merely the price of the underlying that gives the position a P/L of zero. However, it can be very tricky to calculate the breakeven stock price for more complex strategies, such as laddered puts. Join Tom, Tony, Julia and Jim as they discuss a simple-ish ways to numerically solve for the breakeven stock price of a laddered put.
Option traders know that selling premium in high IV markets can provide us with a richer premium. Other than this, what are the other benefits of doing so? Tom and Tony weigh in.
Option traders know that selling premium in high IV markets can provide us with a richer premium. Other than this, what are the other benefits of doing so? Tom and Tony weigh in.
Even two traders who agree about what they think the market will do can wind up making different trades. Deciding between different trading strategies often comes down to a balance between profitability and risk. Today, Tom and Tony look at the data to compare outcomes for hypothetical traders who collected the same credit on the same assumption, but one chose undefined risk trades and other defined risk.
Even two traders who agree about what they think the market will do can wind up making different trades. Deciding between different trading strategies often comes down to a balance between profitability and risk. Today, Tom and Tony look at the data to compare outcomes for hypothetical traders who collected the same credit on the same assumption, but one chose undefined risk trades and other defined risk.
Current implied volatility levels and low equity prices caused a leveling out of put skew. This means that calls and puts are equally priced among equity indexes' strike prices. This suggests that call strategies may be more lucrative since you get paid more for selling calls relative to historical averages.
Current implied volatility levels and low equity prices caused a leveling out of put skew. This means that calls and puts are equally priced among equity indexes' strike prices. This suggests that call strategies may be more lucrative since you get paid more for selling calls relative to historical averages.
Short OTM options strategies are highly likely to hit profit targets between 25% and 50% at some point in the duration of the trade. Short 45 DTE 16Δ SPY strangles, for example, have roughly a 90% chance of reaching a 50% profit target. On average, it has taken roughly 15 trading days (about 24 days) for this target to be reached. How does implied volatility impact these profit statistics? Join Tom and Tony as they break down whether implied volatility significantly impacts profit statistics.
Short OTM options strategies are highly likely to hit profit targets between 25% and 50% at some point in the duration of the trade. Short 45 DTE 16Δ SPY strangles, for example, have roughly a 90% chance of reaching a 50% profit target. On average, it has taken roughly 15 trading days (about 24 days) for this target to be reached. How does implied volatility impact these profit statistics? Join Tom and Tony as they break down whether implied volatility significantly impacts profit statistics.
There are three moving parts in the standard formula for calculating expected move: Price, IV, and Duration.But which one of these is essential in determining its value?Join Tom and Tony as they discuss how IV can impact the expected move value.
There are three moving parts in the standard formula for calculating expected move: Price, IV, and Duration.But which one of these is essential in determining its value?Join Tom and Tony as they discuss how IV can impact the expected move value.
Outlier events, in terms of the expected move, are infrequent, but if you trade enough, they'll happen to you and your underlyings. It can be hard figuring out what do in the wake of these outlier events. Today, Tom and Tony look at the data to see how the market has behaved in the weeks, months, and years following large daily drops.
Outlier events, in terms of the expected move, are infrequent, but if you trade enough, they'll happen to you and your underlyings. It can be hard figuring out what do in the wake of these outlier events. Today, Tom and Tony look at the data to see how the market has behaved in the weeks, months, and years following large daily drops.
In this Options Jive, Anton joins Tom and Tony with research-driven statistics including: correlations, expected moves, implied volatility overstatement, historical volatilities, pairs trades expected moves, and price ranks.
In this Options Jive, Anton joins Tom and Tony with research-driven statistics including: correlations, expected moves, implied volatility overstatement, historical volatilities, pairs trades expected moves, and price ranks.
According to the Black-Scholes Model, option contracts with the same underlying and duration should have the same implied volatility across strikes. However, since the market values each contract differently, a volatility smile often appears. The volatility smile of an underlying gives traders an idea of the perceived value of its options, and can be a powerful tool for short premium traders. Join Tom and Tony as they break down the different types of volatility smiles. Learn how to get your copy of "The Unlucky Investor’s Guide to Options Trading."
According to the Black-Scholes Model, option contracts with the same underlying and duration should have the same implied volatility across strikes. However, since the market values each contract differently, a volatility smile often appears. The volatility smile of an underlying gives traders an idea of the perceived value of its options, and can be a powerful tool for short premium traders. Join Tom and Tony as they break down the different types of volatility smiles. Learn how to get your copy of "The Unlucky Investor’s Guide to Options Trading."
Using the standard formula to calculate the expected move could be complex due to the difficulty of getting the square root of a non-integer number.But, since most traders only care about the daily expected move, we are able to find a great alternative solution.Join Tom and Tony as they discuss a quick and easy way to calculate the expected daily move of any stocks or futures.
Using the standard formula to calculate the expected move could be complex due to the difficulty of getting the square root of a non-integer number.But, since most traders only care about the daily expected move, we are able to find a great alternative solution.Join Tom and Tony as they discuss a quick and easy way to calculate the expected daily move of any stocks or futures.
When it comes to selling premium, all a trader wants is a good credit received on a trade with a strike that never comes close to being tested. But we can't always get what we want. Sometimes those strikes are going to get broken. Should we give up on those trades or hold out to see if they will turn around?
Today, Tom and Tony look at the data to see how often broken strikes manage to return to out-of-the-money during the life of the trade and how our choice of strikes affects this.
When it comes to selling premium, all a trader wants is a good credit received on a trade with a strike that never comes close to being tested. But we can't always get what we want. Sometimes those strikes are going to get broken. Should we give up on those trades or hold out to see if they will turn around?
Today, Tom and Tony look at the data to see how often broken strikes manage to return to out-of-the-money during the life of the trade and how our choice of strikes affects this.
Calculating the IV adjusted notional value of an underlying is an easy way to compare that underlying’s risk to another. The comparison is independent and forward-looking, meaning that it looks at the current exposure of one underlying and the current exposure of another. The comparison should not be used to correlate outcomes: “if ABC has an outlier move, then XYZ will have even a bigger outlier move” is not the correct usage.
Calculating the IV adjusted notional value of an underlying is an easy way to compare that underlying’s risk to another. The comparison is independent and forward-looking, meaning that it looks at the current exposure of one underlying and the current exposure of another. The comparison should not be used to correlate outcomes: “if ABC has an outlier move, then XYZ will have even a bigger outlier move” is not the correct usage.
Profiting in a sideways market isn’t possible using long or short price strategies alone, but trading options offer clear opportunities in this area via short premium. When trading short premium strategies, there is the potential to profit from not only the price movement of the underlying, but also the change in implied volatility and time decay.
Profiting in a sideways market isn’t possible using long or short price strategies alone, but trading options offer clear opportunities in this area via short premium. When trading short premium strategies, there is the potential to profit from not only the price movement of the underlying, but also the change in implied volatility and time decay.
IVR is a central metric to tasty mechanics. When IVR is high, premium sellers have large profit potentials and, if it falls back down, can they profit regardless of the direction of the market. Today, Tom and Tony look at the data to see how long IVR tends to stay high or low for and how long it takes to make the transition between the two.
IVR is a central metric to tasty mechanics. When IVR is high, premium sellers have large profit potentials and, if it falls back down, can they profit regardless of the direction of the market. Today, Tom and Tony look at the data to see how long IVR tends to stay high or low for and how long it takes to make the transition between the two.
Trading options on equity indexes has many avenues that are all liquid. The only tangible difference to traders between the products is the notional size of the product and the buying power reduction of the position.
Trading options on equity indexes has many avenues that are all liquid. The only tangible difference to traders between the products is the notional size of the product and the buying power reduction of the position.
While the first goal of a trader is to make money, the second goal is to do so consistently. Looking at the standard deviation of profit and loss gives us a useful metric on the unreliability of trading strategies. Tom and Tony take a look.
While the first goal of a trader is to make money, the second goal is to do so consistently. Looking at the standard deviation of profit and loss gives us a useful metric on the unreliability of trading strategies. Tom and Tony take a look.
The probability of touch is the probability that a strike will be tested by the underlying before expiration. The statistic is approximated by multiplying the option’s delta (or Prob ITM) by two. Knowing defensive adjustment tactics for when a strike gets breached is important. Since the POT of strangles is usually well above 50%, you will experience more tested positions than not.
The probability of touch is the probability that a strike will be tested by the underlying before expiration. The statistic is approximated by multiplying the option’s delta (or Prob ITM) by two. Knowing defensive adjustment tactics for when a strike gets breached is important. Since the POT of strangles is usually well above 50%, you will experience more tested positions than not.
In low IV environments, diversifying portfolios is easy because non-correlated underlyings are plentiful. The risk of a portfolio that only contains non-correlated stock is understated because stock correlations increase in periods of high IV. By utilizing other asset classes and option strategies in our portfolios, we may diversify away more risk because those assets and strategies tended to remain less correlated to each other than stocks would be.
In low IV environments, diversifying portfolios is easy because non-correlated underlyings are plentiful. The risk of a portfolio that only contains non-correlated stock is understated because stock correlations increase in periods of high IV. By utilizing other asset classes and option strategies in our portfolios, we may diversify away more risk because those assets and strategies tended to remain less correlated to each other than stocks would be.
Using low correlation underlyings is the key to reaching a large number of occurrences and reducing the risk inherent in selling option premium. tastytrader’s also tend to increase their trading activity when volatility is high in order to capture the additional profit potential. Today, Tom and Tony look at the data to see how correlations have varied depending on the volatility of the underlyings.
Using low correlation underlyings is the key to reaching a large number of occurrences and reducing the risk inherent in selling option premium. tastytrader’s also tend to increase their trading activity when volatility is high in order to capture the additional profit potential. Today, Tom and Tony look at the data to see how correlations have varied depending on the volatility of the underlyings.
FOMC days do not make much of a difference to tastytraders because we trade over a longer timeframe (45 DTE), and the only volatility that is observed due to the meeting is in the first hour.If any argument is to be made about the day-to-day interest rate volatility on FOMC days, it is actually lower than any marker day.
FOMC days do not make much of a difference to tastytraders because we trade over a longer timeframe (45 DTE), and the only volatility that is observed due to the meeting is in the first hour.If any argument is to be made about the day-to-day interest rate volatility on FOMC days, it is actually lower than any marker day.
Implied volatility (IV) is a direct measure of option prices and provides option sellers with a measure of opportunity for profits. But high IV periods also tend to be the most dynamic times for the market. How can tastytraders do their best to profit from these atypical conditions without making unfounded assumptions?
Today, Tom and Tony dive into the data surrounding the periods of highest IV from the past 17 years and see how long they lasted and how the market moved during those times.
Implied volatility (IV) is a direct measure of option prices and provides option sellers with a measure of opportunity for profits. But high IV periods also tend to be the most dynamic times for the market. How can tastytraders do their best to profit from these atypical conditions without making unfounded assumptions?
Today, Tom and Tony dive into the data surrounding the periods of highest IV from the past 17 years and see how long they lasted and how the market moved during those times.
January was a month where realized volatility was larger than IV anticipated at the beginning of the month. This happens around 1 out of every 6 months on average.From February into March, IV has remained consistently high, and the realized volatility we experienced is actually on par with what IV was anticipating.
January was a month where realized volatility was larger than IV anticipated at the beginning of the month. This happens around 1 out of every 6 months on average.From February into March, IV has remained consistently high, and the realized volatility we experienced is actually on par with what IV was anticipating.
Really eventful weeks can be large shocks to the market, but contrarian tastytraders often view them as opportunities. Today, Tom and Tony explore the data to see how long lasting the effects from these extreme moves can be.
Really eventful weeks can be large shocks to the market, but contrarian tastytraders often view them as opportunities. Today, Tom and Tony explore the data to see how long lasting the effects from these extreme moves can be.
Buying Power Reduction (BPR) is the capital required to place and hold an options trade.At any given time, we generally recommend allocating between 25% and 50% of BPR towards your options trades, with that amount varying depending on the underlying’s implied volatility (IV).With the VIX currently above 30, we decided to look into how BPR differs across various VIX levels and how that could impact your allocation now. Join Tom and Tony to find out!
Buying Power Reduction (BPR) is the capital required to place and hold an options trade.At any given time, we generally recommend allocating between 25% and 50% of BPR towards your options trades, with that amount varying depending on the underlying’s implied volatility (IV).With the VIX currently above 30, we decided to look into how BPR differs across various VIX levels and how that could impact your allocation now. Join Tom and Tony to find out!
Tom and Tony explain what the VIX is, how it differs from a typical underlying, and what that means when it comes to trading VIX options.
Tom and Tony explain what the VIX is, how it differs from a typical underlying, and what that means when it comes to trading VIX options.
Option sellers have been profitable in the long term because they inherently take risk away from option buyers, and option sellers expect to be compensated for this risk transfer. The option seller’s historical long-run profitability does not mean that the market is inefficient.
In exchange for the positive expected profitability given to option sellers, option buyers are met with peace of mind and limited risk for each of their trades.
Option sellers have been profitable in the long term because they inherently take risk away from option buyers, and option sellers expect to be compensated for this risk transfer. The option seller’s historical long-run profitability does not mean that the market is inefficient.
In exchange for the positive expected profitability given to option sellers, option buyers are met with peace of mind and limited risk for each of their trades.
tastytraders are always on the lookout for high volatility opportunities to sell premium, but how can we tell if a given volatility is “high”? Today, Tom and Tony explain two normalized volatility metrics and use some data to help interpret them.
tastytraders are always on the lookout for high volatility opportunities to sell premium, but how can we tell if a given volatility is “high”? Today, Tom and Tony explain two normalized volatility metrics and use some data to help interpret them.
Since the start of the year, the major indices have seen their Implied Volatility Ranks (IVRs) over 50 quite frequently. 37% of the time for the S&P, 60% for the Nasdaq, and 47% of the time for the Russell.However, since volatility is mean reverting, it is unlikely that we see sustained periods of high IVR.When we see IVR start to increase, how long can we expect the indices to stay at or around that level before eventually decreasing?Join Tom and Tony to find out!
Since the start of the year, the major indices have seen their Implied Volatility Ranks (IVRs) over 50 quite frequently. 37% of the time for the S&P, 60% for the Nasdaq, and 47% of the time for the Russell.However, since volatility is mean reverting, it is unlikely that we see sustained periods of high IVR.When we see IVR start to increase, how long can we expect the indices to stay at or around that level before eventually decreasing?Join Tom and Tony to find out!
In the abstract world of the Black-Scholes model, underlying price movements should be self-similar: the statistical properties don’t change as you zoom in or out. But abstract theory only sometimes accords with reality.
Today, Tom and Tony dive into the data to compare runs on different time scales and see how close the market is to the models.
In the abstract world of the Black-Scholes model, underlying price movements should be self-similar: the statistical properties don’t change as you zoom in or out. But abstract theory only sometimes accords with reality.
Today, Tom and Tony dive into the data to compare runs on different time scales and see how close the market is to the models.
SPX is currently in the same spot that it opened the week with but there was a whole lot that happened in the past five days. Tom, Tony and Jermal cover all the events that transpired this week.
SPX is currently in the same spot that it opened the week with but there was a whole lot that happened in the past five days. Tom, Tony and Jermal cover all the events that transpired this week.
Changes in 30-day (typical) IV can affect short term options and the short term IV much more significantly, making them higher risk trading vehicles.
The move in short term IV tends to be a magnified version of what 30-day IV does. In future segments, we will show research on how these short term options actually perform if traded regularly.
Changes in 30-day (typical) IV can affect short term options and the short term IV much more significantly, making them higher risk trading vehicles.
The move in short term IV tends to be a magnified version of what 30-day IV does. In future segments, we will show research on how these short term options actually perform if traded regularly.
tastytraders look to the probability of profit when evaluating potential trades. While these probabilities might describe how many winning trades we’ll see in the long run, there are bound to be good years and bad years.
Today, Tom and Tony dive into the data to look at how different strategies have fared over the years.
tastytraders look to the probability of profit when evaluating potential trades. While these probabilities might describe how many winning trades we’ll see in the long run, there are bound to be good years and bad years.
Today, Tom and Tony dive into the data to look at how different strategies have fared over the years.
The moves created by each of the FAANG earnings debate determine whether or not the indices need to be re-weighted. This is a matter of playing a game called long, short or trade with FB, TWTR and SNAP where you choose which will be trading higher a year from today and then decide which is the best to trade from a collecting standpoint.
The moves created by each of the FAANG earnings debate determine whether or not the indices need to be re-weighted. This is a matter of playing a game called long, short or trade with FB, TWTR and SNAP where you choose which will be trading higher a year from today and then decide which is the best to trade from a collecting standpoint.
With the upcoming Google stock split, many options traders will have access to a FAANG stock that was previously out of reach for many due to its high share price and buying power reduction. Any post-split returns or IV changes cannot be mathematically attributed to the stock split itself, and will continue to move in their usual unpredictable natures. Total notional value and open P/L for Google positions will not be affected by the split.
With the upcoming Google stock split, many options traders will have access to a FAANG stock that was previously out of reach for many due to its high share price and buying power reduction. Any post-split returns or IV changes cannot be mathematically attributed to the stock split itself, and will continue to move in their usual unpredictable natures. Total notional value and open P/L for Google positions will not be affected by the split.
Premium sellers are naturally betting against large moves in the underlying and generally benefit from whipsaw price movements. But sometimes, for whatever reason, an underlying goes the same direction day after day. Today, Tom and Tony dive into the data to look at how frequent and impactful these protracted runs can be.
Premium sellers are naturally betting against large moves in the underlying and generally benefit from whipsaw price movements. But sometimes, for whatever reason, an underlying goes the same direction day after day. Today, Tom and Tony dive into the data to look at how frequent and impactful these protracted runs can be.
A futures contract is a binding agreement between a buyer and a seller to buy or sell an asset at a fixed price at a predetermined future month. Just like options, one can trade in and out of them freely and they don’t have to be held until expiration day. Futures offer significant advantages over options and many traders should consider adding these tools to their portfolio.
Join Tom, Tony and Jermal as they take a look at the advantages that futures offer over options and how they can compliment a portfolio.
A futures contract is a binding agreement between a buyer and a seller to buy or sell an asset at a fixed price at a predetermined future month. Just like options, one can trade in and out of them freely and they don’t have to be held until expiration day. Futures offer significant advantages over options and many traders should consider adding these tools to their portfolio.
Join Tom, Tony and Jermal as they take a look at the advantages that futures offer over options and how they can compliment a portfolio.
A jade lizard came from Liz and Jenny that created a middle-ground of two strategies: neutral price bias + no risk to the upside. This combination lets people capitalize on opportunity created by falling markets and high IV while giving the peace of mind that a whipsaw-up will not hurt you. Learn more about this strategy in today's episode with Tom and Tony.
A jade lizard came from Liz and Jenny that created a middle-ground of two strategies: neutral price bias + no risk to the upside. This combination lets people capitalize on opportunity created by falling markets and high IV while giving the peace of mind that a whipsaw-up will not hurt you. Learn more about this strategy in today's episode with Tom and Tony.
Crypto is believed to be a diversifier for a traditional equity portfolio, but this year, it does not seem to be offering much assistance to overall performance.
With both the equity and crypto markets struggling to find an uptick to start 2022 off, we look at how the correlation between these two markets has changed in recent months.
Crypto is believed to be a diversifier for a traditional equity portfolio, but this year, it does not seem to be offering much assistance to overall performance.
With both the equity and crypto markets struggling to find an uptick to start 2022 off, we look at how the correlation between these two markets has changed in recent months.
Traders are watching homebuilder stocks as rising interest rates threaten to shake up a sector that surged to record highs in 2021. With the 10-year yield pushing above 1.85%, it’s possible that expensive borrowing costs may deter homebuyers and put a dent in these stocks.
Join Tom, Tony and Jermal as they discuss ways to play the homebuilding sector and the bond market.
Traders are watching homebuilder stocks as rising interest rates threaten to shake up a sector that surged to record highs in 2021. With the 10-year yield pushing above 1.85%, it’s possible that expensive borrowing costs may deter homebuyers and put a dent in these stocks.
Join Tom, Tony and Jermal as they discuss ways to play the homebuilding sector and the bond market.
Learn the importance of minimizing emotion while trading. Know the probabilities of independent trades going against you, and how to combat this with a set strategy and small positions.
As a new trader, keeping a short list of good practices can save from certain situations.
The following three guidelines/truths can help keep you on the right track:
- Keep position sizing small especially when IV is deflated.
- Tomorrow is always a mystery day in terms of price direction.
- If you are going to cap your risk, buy the long wing far out (15 delta or less) to make sure that you don’t cancel out the theta and IV contraction of the short option.
Join Tom and Tony as they explain.
Learn the importance of minimizing emotion while trading. Know the probabilities of independent trades going against you, and how to combat this with a set strategy and small positions.
As a new trader, keeping a short list of good practices can save from certain situations.
The following three guidelines/truths can help keep you on the right track:
- Keep position sizing small especially when IV is deflated.
- Tomorrow is always a mystery day in terms of price direction.
- If you are going to cap your risk, buy the long wing far out (15 delta or less) to make sure that you don’t cancel out the theta and IV contraction of the short option.
Join Tom and Tony as they explain.
Conditional value at risk, or CVaR, is an investment statistic that can be useful for understanding the risk associated with a trade. Typically it is calculated using historical data from similar trade, but in the Black-Scholes model it can also be derived from Implied Volatility. Today, Tom and Tony check the data to see how Implied CVaR does at anticipating risk.
Conditional value at risk, or CVaR, is an investment statistic that can be useful for understanding the risk associated with a trade. Typically it is calculated using historical data from similar trade, but in the Black-Scholes model it can also be derived from Implied Volatility. Today, Tom and Tony check the data to see how Implied CVaR does at anticipating risk.
Volatility expansion is dependent on the magnitude of price movements and not the direction of price movement. Join Tom, Thomas, and Jermal as they give you the ins and outs of volatility expansion and the relationship between price and implied volatility.
Volatility expansion is dependent on the magnitude of price movements and not the direction of price movement. Join Tom, Thomas, and Jermal as they give you the ins and outs of volatility expansion and the relationship between price and implied volatility.