TastyTrade Method

[ironchef]

The markets are efficient - everyone including Tom agrees with that. End of story. There is no edge in selling or buying premium and the broker gets rich. Thats why they are setting up a broker cause greed has no end.

The people that make money understand that you have to make Money long term. Thats it. Tastytrade professes that selling premium creates more profitable trades over time within a limited sample which they curve fit for their goal. That is not a lie.(TastyTrade-OptionJive Today) What they dont tell you is that the fewer unprofitable trades kill your portfolio returns and cause margin calls at the worst time. You lose Money. That's it.

So, if your goal is to have fun and make more times than you lose while taking significant heat before expiry, then sell premium and buckle up. You will win and win but overall you will lose Money.

If your goal is to make money, then do the opposite of these tastytraders cause you know you can find liquidity when they put on their trades. The odds are still the same given the markets are efficient. The only way to tilt the outcome is to understand how to manage your money and your emotions with a focus on the end game - Make Money long term.

As Tom has always said, "if you think we are wrong, take the other side of the trade - I dont care". Now he does care if you use his brokerage - cause either way he wins!

I appreciate you comments and reply. Just one comment: Buy and hold 100 shares of the underlying and selling 1 contract put/call is not a valid one to one comparison but let's not argue I owe it to you to run some more tests/studies on shorting options.

Don't let those that disagreed run you off ET. I for one appreciate different ideas and opinions.

There are many ways to skin a cat, I have seen traders made money going short and traders made money going long. One trader I know specializes in shorting AAPL options and made a lot of money over more than a decade and never had a losing year (but he had a method and did not do his trade mechanically).

I believe a lot of the posters here are professional traders and have lots of experiences and successes trading, I (we) should pay attention to what they said.

Regards,

 

[ironchef]

short

Thanks for the clarification.

 

[tradelosses]

In an actual account or in paper trading?

I was trying to enter one based on what you said and so far I've given up 5 cents from the mid price and I'm still not filled

just keep moving it until it's filled . shouldn't be more than 8 or so cents from midpoint

 

[ironchef]

I appreciate you comments and reply. Just one comment: Buy and hold 100 shares of the underlying and selling 1 contract put/call is not a valid one to one comparison but let's not argue I owe it to you to run some more tests/studies on shorting options.

Don't let those that disagreed run you off ET. I for one appreciate different ideas and opinions.

There are many ways to skin a cat, I have seen traders made money going short and traders made money going long. One trader I know specializes in shorting AAPL options and made a lot of money over more than a decade and never had a losing year (but he had a method and did not do his trade mechanically).

I believe a lot of the posters here are professional traders and have lots of experiences and successes trading, I (we) should pay attention to what they said.

Regards,

Sorry Stymie, I was actually replying to Texas' post not yours. Clicked on the wrong post.

 

[Texas Johnny]

Iron chief, you are right. There are many ways to play this game. Some more points:

The straddle that was sold by another member of this post showed a wide bid/ask spread in SPY. That makes sense as the trade is 6 months out. Not many players there. If you go 2 months out, it's a penny wide (Selling Straddle SPY). It's safe to go way out, but there are drawbacks. That's one of them. Try 80DTE. Note: 45DTE is the optimal theta decay for ATMs in general. SKEW will change the different strikes' IV but that's a good starting point for selling options again "in general".

Regarding the point about that put spread, here are some more details. It's not my trade; it's John Locke's trade, a fellow trader. I have to give him credit. It's a great trade. It wins 9 out of 12 months on average. One key rule is not to trade it when the market is really moving (ie. VIX > 35). Also, I just grabbed the $2 number from today. VIX is in the 11 handle. So, we can ascertain that it's really low. You should get around $3 on average. When VIX or fear rises premiums rise. That's a good thing. That's why we sell. Now, in 2008 when it really rose you lost that month if the trade was on. The loss was not 3x the "normal" loss, it was less than that, but it was larger than normal. Good news: the next trade was "beefed up" meaning a larger credit due to the increase in volatility.

That brings up a key point. Trade execution. You don't freak out and try to get out the first hour. Overall, getting in and out of a trade is an art assuming it's in one of the indexes, SPX, RUT, etc. Stick with SPY if new...penny wide but those widen when the market freaks out. IE. The ATMs bid/ask spread expanded to 8 points the morning of Brexit. Just try not to trade the first hour. Let things settle down. That was helpful for me after those huge market drops in October 2014, August 2015 and Brexit.

I'm in this forum since I know a lot of folks don't actually sell options. Talking about the pros and cons is different until you have actually done it. It's just a lack of understanding which is fine.

 

[DTB2]

A Tastytrader thinks that study has many holes in it? That's rich. You seem to prefer this type of study. https://www.tastytrade.com/tt/shows...des/buying-premium-before-earnings-04-26-2016

Buying a straddle which hopes to see significant price and these guys do a study of buying a straddle and closing it right before earnings!? See? It doesn't work. smh

Either TJ, missed this point, doesn't want to see it or doesn't get the fundamental point.

 

[Texas Johnny]

Either TJ, missed this point, doesn't want to see it or doesn't get the fundamental point.

I missed it, no worries. Yeah, TT was trying to play the volatility increase before earnings. As you know, when you buy a straddle you can make money when vol rises. This is what happens before an announcement. Then after it, the vol drops like a rock (no mention of price here, just vol). The same thing happened before the US election. Vol rose in the options chain, then fell the next day. That was the purpose of the study. Make money playing the vol play. Some folks buy calendar spreads as well before an announcement. TT was showing that it's not a sound strategy. Why didn't they keep it on until after the announcement? That wasn't the purpose of that particular study.

Lot's to cover with all these posts.

 

[DTB2]

I missed it, no worries. Yeah, TT was trying to play the volatility increase before earnings. As you know, when you buy a straddle you can make money when vol rises. This is what happens before an announcement. Then after it, the vol drops like a rock (no mention of price here, just vol). The same thing happened before the US election. Vol rose in the options chain, then fell the next day. That was the purpose of the study. Make money playing the vol play. Some folks buy calendar spreads as well before an announcement. TT was showing that it's not a sound strategy. Why didn't they keep it on until after the announcement? That wasn't the purpose of that particular study.

Lot's to cover with all these posts.

Of course that wasn't the purpose of the study. The purpose of the study was to show you can't buy options and make money, thus they chose a straddle pegged to the exit price. That's the definition of an unsound strategy is it not?

They even stressed that they bought the absolute best strike possible when it is exactly the opposite, they bought the worst strike.

If somehow you don't find that misleading...keep drinking the Koolaid.

 

[Texas Johnny]

If price doesn't move then what's the best strategy for playing a volatility move? The straddle. That's why TT used it.

Why are people so hostile when confronted? It doesn't bother me but it sure bothers some. The idea is to help each other here.

 

[DTB2]

Of course that wasn't the purpose of the study. The purpose of the study was to show you can't buy options and make money, thus they chose a straddle pegged to the exit price. That's the definition of an unsound strategy is it not?

If somehow you don't find that misleading...keep drinking the Koolaid.

If price doesn't move then what's the best strategy for playing a volatility move? The straddle. That's why TT used it.

Why are people so hostile when confronted? It doesn't bother me but it sure bothers some. The idea is to help each other here.

Please stop with trying to teach people about selling premium, you are not qualified.

Here's a primer for you from none other than JJ Kinahan. http://www.forbes.com/sites/jjkinah...ou-touchdowns-or-get-you-sacked/#5789b49b199e

A few snippets, " In order to simplify this discussion, we will keep this to the at the money strikes as when professionals discuss a straddle that is the implied reference unless otherwise noted"

"Now let’s talk about the reasons we might want to buy a straddle. The primary reason that one would want to do so is that you are expecting movement."

You're on your own TJ.