Tastytrade Review + Criticism

I know that I didn't say anything in favor of Iron Condors and actually I agree that they are a bad idea as you are buying the relatively expensive wings and selling the relatively cheap closer to the money options.

On the comments about buy and hold not being so bad - I disagree on 2 levels. First, we just had a multi-year, Fed-induced super bull rally that's not indicative of normal markets and won't likely last for much longer. Secondly, even during this bull market, strangle selling has a much smoother equity curve and hence higher risk-adjusted return than B&H (Sharpe ratio).
 
Diamond Geezer said:
I know that I didn't say anything in favor of Iron Condors and actually I agree that they are a bad idea as you are buying the relatively expensive wings and selling the relatively cheap closer to the money options.

On the comments about buy and hold not being so bad - I disagree on 2 levels. First, we just had a multi-year, Fed-induced super bull rally that's not indicative of normal markets and won't likely last for much longer. Secondly, even during this bull market, strangle selling has a much smoother equity curve and hence higher risk-adjusted return than B&H (Sharpe ratio).
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Pick an index any index. Reinvest dividend... Get about ten percent each year. That is over any time frame .

Even from the beginning of the index in 1896. Fed or no Fed.

Is this market inflated sure, however I also don't know of anyone who has blown up an account being someone who buys and holds an index.

With an over inflated market, as you point out, strangle selling and swans don't mix. With a bubble market it could be down 15% in a day when it pops. If its a bubble and not normal, one should not look to sell vol.

B&H Boring yes. Risky not so much.

Good for you if you do better than 10% a year.

However I disagree with your risk assessment.
 
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paladinhgwt said:
Pick an index any index. Reinvest dividend... Get about ten percent each year. That is over any time frame .

Even from the beginning of the index in 1896. Fed or no Fed.

Is this market inflated sure, however I also don't know of anyone who has blown up an account being someone who buys and holds an index.

With an over inflated market, as you point out, strangle selling and swans don't mix. With a bubble market it could be down 15% in a day when it pops. If its a bubble and not normal, one should not look to sell vol.

B&H Boring yes. Risky not so much.

Good for you if you do better than 10% a year.

However I disagree with your risk assessment.
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10 percent with buy and hold is like 15 percent with short vol strategies.
 
They have put some nice research out for free and many of us have benefited from that. Reading from some comments here if I put up a chart showing that 2 > 1, some would disagree with my math. Its not an opinion to say that one time series has a lower measured past risk/reward profile than another, its math.

Now that said, systematic strangle selling with proper equity allocation is superior to B&H by all metrics, it still suffers too much tail risk for my comfort. This is where Tastytrade could up their game. Show the results to using an offsetting strategy in conjunction with strangle selling and show all the performance metrics. How about long stock straddles during gamma-week (just days before expiration) screened by some measure of cheapness? I've bought a bunch of data myself and have been working on this in Python for some weeks.

I'm grateful for the work Tastytrade has done.
 
TT imo is just an infomercial to drive commissions to TDAM. Here is how I know. Tom will never give you his P/L percentage, probably because it is negative and considered a business expense. However everything he says implies and edge selling vol at high IV rank. Sorry, but there is no free lunch doing that.

Jim Cramer has actions alerts plus, similar to TT Bob the trader. The difference is Jim is transparent and underperformed the SPX by about 0.5%. With TT who knows. What we do know is every account they have disclosed has blown up. Ie the one with the girl and Batista being the mentor.

As for their studies... They are picked Al a carte to fit with whatever they are currently trying to hawk. I could find stocks in their list and do the complete opposite strategy and have a positive p/l over which ever time frame they picked. Viewer beware.
 
Diamond Geezer said:
I want to address 2008 and also the issue of Tom's reluctance to discuss expected annual returns, drawdowns and other metrics. I doubt he even knows what a Sharpe ratio is, much less a Sortino ratio. Here is an equity curve for selling 1 SD strangles (their standard strategy) from the Market Measures Sept 2nd, 2016 show. Its a good strategy but...

View attachment 167468
I want to correct those who claim that 1% a day, 4% a month is feasible. Of the many criticisms I have here, one is that they did not show the average annual return and you can't exactly figure it out because they don't tell you the terminal equity $. Can we estimate $60,000 from this graph? By my back of the envelope calculations, that's approx 24% avg annual return BUT here is the catch. This market measure segment was all about the appropriate amount of total equity to allocate to the strategy to avoid a margin call in market crashes -- hence the 30% number in the chart. So if you dedicate $75,000 of capital (3x$25,000), and trade only $25,000 of it as they do here to avoid margin calls then yes, your annual return to this strategy is in the region of 7% annualized. This is indeed superior to buy and hold the market from an absolute return standpoint and especially risk-adjusted standpoint.

Lastly, look at that drawdown to selling strangles in 2008, you give every penny back that you made in the previous 3 years and then some! Karen the supertrader evidently under-appreciated this risk, no surprise since TT has only recently added equity curves to their presentations and still don't provide the key risk metrics. If there is interest, I will post some thought on how to actually get that 7% return up much higher while keeping risk under control. TT don't discus it because with their commision structure, you can't accomplish what I propose, but with lower cost brokers you can. DG
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I, too, am interested in your thoughts on how you would improve on the 7% return while keeping risk under control. Also, Diamond, please share your thoughts on what you believe TT's commission structure to be, and where you would place your trades to improve on that. We all can have quite different commission arrangements, and any thoughts on improving them would be helpful, I'm sure.
 
I know for sure what their commission structure is and rather than detail it here, this is a synopsis:
http://www.brokerage-review.com/compare/interactive-brokers-vs-thinkorswim-review.aspx

Thinkorswim commissions make certain trades prohibitive. To their defense, the platform is way more user friendly than Interactive Brokers (IB) but the advantage stops there. The trades I describe below only work with IB or similar low commission brokers.

So, to offer an alternative to just selling strangles in the style of Tom Sosnoff et all with its incumbent tail risk I suggest that you need to offset the negative gamma (and vega) with offsetting, reasonably priced long vega and gamma.

Step 1: look for only liquid stocks that have weekly options. Stocks with only regular expiration cycles (non-weeklies) can be added to this list during the last week, 5 days to expiration. Options traders call the last week "gamma week" for a reason. Gamma is at its highest for very short dated at-the-money options. Their options prices swing wildly during these last few days but from the long side, you can lose at most the premium you pay (versus multiples of the premium received as a seller).

Individual stock options have a much lower "volatility risk premium" (VRP) relative to index options or their ETF cousins (S&P500 and SPY for example). So under all circumstances buying contracts with a lower volatility risk premium and selling index strangles with a high volatility risk premium has a built-in edge. This is similar to a classic "dispersion trade" except its different in some key respects. Anyone confused with what the VRP is, just Google it because its the industry term for what Tom and gang call something else. They hate using the industry lingo and so they make their own lingo up and confuse everybody.

Step2: Screen these 5 day to expiration individual long stock straddles (sorry, I should have mentioned this above) for temporary cheapness during the last 5 days to expiration. There are multiple ways to do this and I'll elaborate on that in a later post and I can back this up with good research. Its critical that these are properly screened for.

Step 3: Use a market volatility timing tool for both the short vol and long vol position. Its hitting midnight so I'll I'm stopping here, will add more if there is interest including links to some of the research that inspired this.
 
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