Karen the Supertrader - TastyTrade Hybrid Experiment
- Thread starter Sweet Bobby
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My one trade for the day. I sold the ES NOV 16 (EOM) 2210C(1) with 55 DTE for $13.00. I then entered a GTC order to buy it back at $6.50 and I set an alert to notify me if the position moves to $39 (a 2X loss). Theta is 334, Delta is -1101, Vega is -2361. All was done under five minutes. Time to take a nap.
Ha! So true! Supertraders should use this time to be on the phone with their attorneys!
Actually, I'm listening to a Dan Sheridan live presentation on managing the Greeks.
The experiment is up 18.89% since April 5.
I have made several changes to Karen's strategy that seem to be working thus far. Most changes are based on tastytrade research.
First, I started managing by the Greeks. Theta of between .1% and .5%. Delta/vega ratio of -1/-2. So each daily trade that I make is made to make an adjustment to my Greeks (especially Delta).
This sometimes puts me in stark contrast to what Karen would do. For example, if the market moves up sharply, Karen would be selling calls. I on the other hand would notice that a sharp increase would cause my deltas to decrease. So I might very likely sell a put to increase my delta. I may be totally wrong, because I know far less than our Tom. But, so far it appears to be working.
I'm managing trades at 50% profit and closing losers at 2X the initial credit received.
Now, here's something that I'm experimenting with! So you want to make a bigger return? Then you have to sell more premium. Tastytrade did research that, on average, you're going to keep 25% of the premium that you sell (based on a 1SD strangle). Interestingly enough, I find that this pretty much applies to my strategy as well even though I've been selling primarily 30 delta puts/calls.
Go back and see if you're keeping about 25% of the premium that you're selling. I think it's a fascinating study. It's certainly not perfect and you have to make it work within your risk parameters. But I think it's kind of cool to figure out how much you want to make this month, sell the requisite amount of premium, and expect over time the averages will work out. If only it was that simple, right?
Bobby
I have made several changes to Karen's strategy that seem to be working thus far. Most changes are based on tastytrade research.
First, I started managing by the Greeks. Theta of between .1% and .5%. Delta/vega ratio of -1/-2. So each daily trade that I make is made to make an adjustment to my Greeks (especially Delta).
This sometimes puts me in stark contrast to what Karen would do. For example, if the market moves up sharply, Karen would be selling calls. I on the other hand would notice that a sharp increase would cause my deltas to decrease. So I might very likely sell a put to increase my delta. I may be totally wrong, because I know far less than our Tom. But, so far it appears to be working.
I'm managing trades at 50% profit and closing losers at 2X the initial credit received.
Now, here's something that I'm experimenting with! So you want to make a bigger return? Then you have to sell more premium. Tastytrade did research that, on average, you're going to keep 25% of the premium that you sell (based on a 1SD strangle). Interestingly enough, I find that this pretty much applies to my strategy as well even though I've been selling primarily 30 delta puts/calls.
Go back and see if you're keeping about 25% of the premium that you're selling. I think it's a fascinating study. It's certainly not perfect and you have to make it work within your risk parameters. But I think it's kind of cool to figure out how much you want to make this month, sell the requisite amount of premium, and expect over time the averages will work out. If only it was that simple, right?
Bobby
Bobby--I've mentioned it previously, but their study indicates capturing 25% of theta--not premium. So if your daily theta is 0.2%, the study suggests theta capture of 0.2% x 365 x 25% = 18.25%
https://www.tastytrade.com/tt/shows/market-measures/episodes/how-much-theta-is-captured-09-07-2016
In the case of selling strangles (as the study), Isn't the "premium" (I.e. Sum of options extrinsic + intrinsic value) all "theta" (I.e. Extrinsic value decay)? Stated another way, since the OTM option premium sold is all extrinsic and theta is extrinsic decay, I don't understand the distinction you're making.
Also, your formula shows 18% annual return on capital (I.e. Return on account value), which I think is calculated correctly but don't understand what is has to do with "premium" vs. "theta" ?
I'm curious what change you're referring to? Is it the use of system P&L "expectation" vs. avg. trade P&L (which I'm guessing can still be a long term negative net expectation???). Something I've been pondering...
I went back and watched both segments. You are correct. I still believe that there exists a correlation with the amount of premium sold. I will have to do a little research.
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