Karen the Supertrader - TastyTrade Hybrid Experiment

[atrp2biz]

Agreed, but even this is not too bad a scenario. This is why Bobby carries a 1:2 delta:vega ratio. I think you have to hedge to the extent of at least flattening delta. If you get whipsawed, at least vol will come in.

 

[Daal]

Agreed, but even this is not too bad a scenario. This is why Bobby carries a 1:2 delta:vega ratio. I think you have to hedge to the extent of at least flattening delta. If you get whipsawed, at least vol will come in.

A big potential whipsaw is the 'take losses at 2x of max loss' that Sossnoff advocates. In a bear market vol of vol is likely to be up a ton. As a result he might get in and out of trades over and over again. This has the potential to exacerbate losses

 

[Daal]

Not to mention that its a contradiction with his market beliefs. If market insurance is consistently overpriced, why get out when people are trampling over each other to buy more of it? Because of risk management? Well, then you probably oversized to begin with

 

[TD80]

The whole key to this thing is managing losers. This is a huge point of disagreement between myself and Sos.

Anyone who has done this long enough will realize that convexity kills, it not only kills if you are leveraged, but it kills your average return over time even if you are cash-secured and do nothing.

So Daal I can't disagree with you more about why stop out / why not just stay in to expiry and use less leverage, although I realize you may be trolling a bit here RE: "Set it and forget it" mentality (in which case we agree). You MUST have an exit (or direct hedge) plan in place or you will not realize an optimal long term outcome.

Premium (especially on the SPX) is absolutely overpriced over the long run but it can be vastly underpriced on occasion.

 

[atrp2biz]

I don't agree with the 2x stop rule. I think this is more for isolated positions. I just care about the net effect of the Greeks on my various positions in a particular underlying.

I do agree with rolling up and down positions to adjust delta which keeps you in the position and able to take advantage of the higher vol.

 

[TD80]

I do agree with rolling up and down positions to adjust delta which keeps you in the position and able to take advantage of the higher vol.

The problem here is that one can end up getting really crushed on a meltdown. One-way directional risk of accelerating magnitude can bury you if you keep rolling down/out. I'm sure some people got murdered in oil when that thing trended one-way in a death spiral trying to roll down/out on the put side of CL or USO or whatever.

Occasionally markets make one-way parabolic-ish moves, I would suggest modeling some way to step aside. 2x credit received may be crude but it probably works to deal with this sort of scenario.

 

[atrp2biz]

I don't agree with this. I wouldn't exit any short premium positions outright when volatility expands. Those are the opportunities that short vol traders have to take advantage of. Again, this is why it's important to maintain negative delta so you don't get hit by both the delta and vega bus (as opposed to the venga bus). I understand gamma is around the corner, but the delta will provide some initial protection.

 

[TD80]

I don't agree with this. I wouldn't exit any short premium positions outright when volatility expands. Those are the opportunities that short vol traders have to take advantage of. Again, this is why it's important to maintain negative delta so you don't get hit by both the delta and vega bus (as opposed to the venga bus). I understand gamma is around the corner, but the delta will provide some initial protection.

This may be of some interest (I neither endorse nor deny TT methods, but occasionally there are some interesting research notes)
:
https://www.tastytrade.com/tt/shows...odes/covered-strangles-short-stock-09-28-2016

At least in broad American stock indexes, which have a very strong long-term upward bias, I would suggest maintaining short deltas all the time is not optimal.

 

[Flynrider]

I did learn something from Karen. Try to make this as simple as possible. So if you're watching tastytrade every day you're going to get bombarded with way too much information. Don't worry about learning all the various strategies. Just focus on about two - strangles and straddles and their components short calls and short puts.

Out trades on at about 45 days to expiration, manage winners at 50%, limit losers to 2x the initial credit received. Close trades at about 21 days to expiration regardless of profit or loss. Don't use more than about 35% of your buying power. Try to keep a delta vega ratio of -1/-2. You can Expect to keep about 25% of the premium that you sell on average. Keep a theta of between 1/10 of 1% to 1/2 of 1%.

I deviate from tastytrade in that I primarily sell premium around the S&P 500 and. It much else. I'm not interested in trading 100 different products. I don't want to watch the screen all day. Take 5-10 minutes every day to make your trades, set good till cancelled orders to take your profits at 50% and then do a one cancels the other order to close it at a loss of 2x loss. If you're trading /ES, do a GTC order to take your profit and then set an alert to notify you if it reaches a loss of 2x loss or greater. Then go spend a little time with your friends and family. Don't worry about the markets and where it's going, just trade what it gives you.

I hear there's an active volcano under Yellowstone that could potentially erupt and wipe out 50% of the US population. I'm going to sleep pretty well tonight and so should you.

The present value of future fear is overpriced! I should be thankful for all these stupid idiots that tell me that I'm going to blow my accounts up and that this is going to end in disaster. These folks are the ones that allow us to continue to make money. They buy protection and I'm more than willing to sell it to them. I'm the insurance company and they are driving the Volvo.

Just don't over complicate this stuff. My experiment is evolving but so far I'm pretty happy. Please let me know if you have any questions.

Aren't you forgetting an important Tastytrade suggestion to generally sell options only when IV is high (e.g. >50% IVR or IVP) vs. regardless or IV? This is where needing to diversify your underlying becomes necessary if you want to be continually in the market.

 

[Daal]

Aren't you forgetting an important Tastytrade suggestion to generally sell options only when IV is high (e.g. >50% IVR or IVP) vs. regardless or IV? This is where needing to diversify your underlying becomes necessary if you want to be continually in the market.

dude, he only wants to work 5 minutes a day