TastyTrade Method

[sysdevel99]

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.

Johnny - nobody is arguing that selling straddles is not a profitable strategy - just don't drink too much of the kool aid. I'll try to keep the summary short but it is picking up pennies in front of steam rollers and most people can't handle a 10% gain strategy when it has a 40% draw down. Those numbers change based on your leverage - in the long term you'll make money - it may take years to come back though. There are a lot of folks that thought because they started at a favorable time they struck gold but unfortunately eventually it all evens out.
Look at this guy https://www.elitetrader.com/et/thre...options-credit-spread-trading-journal.212817/ - very similar strategy - except defined risk - he thought he invented sliced bread - took 110 pages of posts for him to blow up.
Look at tastytrades supertrader https://www.elitetrader.com/et/thre...er-karen-the-faker.301755/page-3#post-4349177
she was hyped over and over until she blew up.

As long as you do this on a very limited amount of your trading capital - you'll be fine.
The same is true if you just were to sell puts on random stocks - that's profitable as well - just sucked when you started doing it in 2007.

Most people want better returns with less draw downs and the challenge is that selling options fools you with the draw downs and can fool you for quite some time

 

[Texas Johnny]

Sysdevel99, now that's how you have a conversation. Thank you. I agree 100% with you that no one should drink anyone's kool aid. Whatever you hear, test it yourself. Regarding those traders who have blown up accounts (ie. Tom with Case's shorting nasdaq futures relentlessly), my question I would ask is...how did you measure risk before putting on the trade or trades?

If you look at some big moves (ie. 911), the market fell 5% after being halted for a week. So, using an overall S&P 500 drop of 5% in one day as a gauge, are you comfortable with that? If not, trade much smaller. TT says to use no more than 1/3 of your capital on options trading, the rest in cash. Find that number that suits you. It can be smaller or bigger. I go a little bigger since I manage my losers.

Here's a trade that has a good return but more importantly it show the effects of drawdowns. Sell an iron condor at 10 deltas on SPY or IWM, you can buy the wings 2-3 strikes down, you choose. Whenever the shorts move 10 deltas close the trade, then put on a new one. Rinse and repeat. You can go 45DTE, etc. Watch how it responds to big moves. Yes, it drawdowns, but the market takes breathers. This is when the theta decay will help out. Result? Positive expectancy.

 

[DTB2]

This might be of interest to some.

https://www.reddit.com/r/options/comments/37a2rx/hi_i_am_philip_maymin_ama/

 

[ironchef]

This might be of interest to some.

https://www.reddit.com/r/options/comments/37a2rx/hi_i_am_philip_maymin_ama/

Thank you for the link. This is what Prof Maymin said in the link about this topic:

there are basically two extreme options strategies: make a bit until you lose a lot, or lose a bit until you make a lot. Selling options works most of the time historically. But then once in a while you go bankrupt. Buying options could be better but could be even worse--what if you take your huge profit too early? And in a sense you really should, since you don't know that it will continue. You really want big jumps that prevent you from exiting early, and that's pretty rare. So bottom line I don't think a general strategy of either buy vol or sell vol will work. You have to actually do the work and price the particular vol and see if it is too cheap or too rich and how can you hedge part of it.

 

[Kevin Schmit]

Selling premium mechanically works. I sell naked straddles systematically for a living...I run a meetup once a month ....

The longer a bull market runs, the more you see this type of post. Nearly 8 yr (relatively) smooth uptrend, vix close to single digits, premium sellers coming out of the woodwork... its a pretty good sign that the bull is getting a bit long in the tooth.

Where are all the premium sellers from 2007?

 

[water7]

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.

there are a lot of misconceptions and generalizations about short volatility trading in this forum
be patient with them

 

[DTB2]

there are a lot of misconceptions and generalizations about short volatility trading in this forum
be patient with them

Maybe Dr. Maymin can help you out as well.

https://www.tastytrade.com/tt/shows/what-else-ya-got/episodes/dr-philip-maymin-skew-10-22-2014

The TT boys at their finest trying to understand derivatives.

 

[ironchef]

Look at this guy https://www.elitetrader.com/et/thre...options-credit-spread-trading-journal.212817/ - very similar strategy - except defined risk - he thought he invented sliced bread - took 110 pages of posts for him to blow up.

I cannot thank you enough for directing me to this thread. A lot of great insights, not from the OP, but from some of the posts if you read carefully what they said.

Texas, this is a discussion board, so, no need to defend what you do. Buying and selling can both be profitable or unprofitable depending on if you know what you are doing. But I suggest you read that thread to gain some more insights if you like. IMHO, there is no edge in either so one needs to do more than mechanically selling/buying to make money in the long term.

 

[tradelosses]

Johnny - nobody is arguing that selling straddles is not a profitable strategy - just don't drink too much of the kool aid. I'll try to keep the summary short but it is picking up pennies in front of steam rollers and most people can't handle a 10% gain strategy when it has a 40% draw down. Those numbers change based on your leverage - in the long term you'll make money - it may take years to come back though. There are a lot of folks that thought because they started at a favorable time they struck gold but unfortunately eventually it all evens out.
Look at this guy https://www.elitetrader.com/et/thre...options-credit-spread-trading-journal.212817/ - very similar strategy - except defined risk - he thought he invented sliced bread - took 110 pages of posts for him to blow up.
Look at tastytrades supertrader https://www.elitetrader.com/et/thre...er-karen-the-faker.301755/page-3#post-4349177
she was hyped over and over until she blew up.

As long as you do this on a very limited amount of your trading capital - you'll be fine.
The same is true if you just were to sell puts on random stocks - that's profitable as well - just sucked when you started doing it in 2007.

Most people want better returns with less draw downs and the challenge is that selling options fools you with the draw downs and can fool you for quite some time

he didn't blow up. the naked strange 200+ days to expiration can handle very big market correction because the premium is so huge. maxing out your account on iron condors is how people blow up

 

[tommcginnis]

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".

There is no basis in sound mathematical modeling, nor statistical study, to support any such TT "45 Day Rule." This is a fiction manufactured by Sosnoff, ON CAMERA, with each of Al Sherbin, Jacob whaz'iz'name (who was NOT in Booth), and Tom P, each saying, ultimately, "You cannot optimize that mathematically." or "You cannot show that conclusively." to which Sosnoff blathers on for a bit and sez,"See?? We've been doing it right for so long, but we never knew why. This [the concept just foresworn by one of his "experts"] shows it!" The expert squirms a bit, and wanders off.

Cherry-picking (as described earlier), grotesque vocabulary abuse ("trade often"?!?!? In correlated OR IDENTICAL assets?? "Ew! Let's declare it an "occurrence"!!) etc etc, and fantastical generalizations from *extremely* limited-scope studies -- are set-up to *sound* smart, and keep people trading, but dumb. Because trading, but dumb, makes money for them serving the trading.