The Tastytrade guys are nice to listen if you in need of listening "traders talk" but based on things Ive seen they are horrendous traders.
Tastytrade
- Thread starter just21
- Start date
I do. Given that implied vol is overstated the majority of the time, trading systematically does work. Backtest it to see for yourself. It beats buy and hold. Sos doesn't do it, but the market measure segments show it. The P&L is almost always higher (depends on strategy) than those trades with an IV Rank > 50. Strangle and Straddles work great. Note: you lose more with an IV < 50 versus IV > 50, but you still make money in the IV < 50. That's why systematic trading works overall.
Good luck!
Good luck!
Uh no, completely wrong. If you were to systematically sell volatility over a long period of time, your expected gain would be the volatility risk premium over that period of time minus your trade commissions. And since the VRP changes all the time, and over different time periods, there is no uniform expected return, it also changes with each different time period.
That's really the most basic of concepts in the options world. If you don't know why the expected outcome is the VRP minus commissions, then you shouldn't be trading.
The number zero in your example is a random number pulled out of thin air, it means nothing. You could have just as easily said -2%, or +3%. All random numbers that mean nothing.
And no twice to the fact that you have to correctly predict volatility. What? So you're one of these guys that trades options no differently than you trade stocks. Pick a direction and structure a trade to profit from that prediction?
Ok, to each his own, but that's not why most of the rest of us successful option traders trade options. We do it so we don't have to gamble our money on personal predictions that are no better than 50/50. But good luck with your coin tossing my friend.
Why do people always think there's "someone" on the other side of the trade?
Like you thought that when you sell an Iron Condor, that someone bought the same one? Dude, that's not how order execution works. There's countless reasons why the contracts on the other side of your trade have nothing to do with your trade.
Last edited:
rmorse
Sponsor
If you enter an order into the COB, it would
If you enter an order into the Complex Order Book on an option exchange, for each execution, there is only one party on the other side of each trade.
If you enter an order into the Complex Order Book on an option exchange, for each execution, there is only one party on the other side of each trade.
Open interest is just a pool of option contracts. You don't have to find an exact counter party individual on the other side of every trade you want to make.
I have an NDX Iron Condor open right now for example. That certainly doesn't mean there is some dude out there with the exact opposite trade that I have cheering against me personally. I mean who knows, maybe there is, but it's certainly not required. I don't have to wait and wait for someone to say NO, I take the opposite trade
This idea that there's always a dude taking the opposite stance to you is silly. You don't know what trades other people are building any more than they know what trades you're building. If that was true, that would mean there's only ever enough Short Iron Condors to offset the idiots who trade long Iron Condors. You'd go month after month never filling your orders because there's no way there's enough Long IC traders to open for the rest of us.
I have an NDX Iron Condor open right now for example. That certainly doesn't mean there is some dude out there with the exact opposite trade that I have cheering against me personally. I mean who knows, maybe there is, but it's certainly not required. I don't have to wait and wait for someone to say NO, I take the opposite trade
This idea that there's always a dude taking the opposite stance to you is silly. You don't know what trades other people are building any more than they know what trades you're building. If that was true, that would mean there's only ever enough Short Iron Condors to offset the idiots who trade long Iron Condors. You'd go month after month never filling your orders because there's no way there's enough Long IC traders to open for the rest of us.
Hey Vix,
Hmm, I think we might be making this too complicated. Maybe we are even on the same side--let's see.
My argument is not really related to whether another person is taking the exact opposite trade. So let's just look at a less complex case. When we are dealing in condors, short straddles, etc. we are hoping for our short options to decline in value. So let's consider the simplest case of selling a put. If I sell a put in the hopes that it will decay, who would buy such a put? People who buy them have an opposite opinion. Yes, some may be buying them as insurance, but other participants are buying puts thinking that they will rise in value over time.
I'm only saying that if you trade these things without any assessment of volatility, over time, you will make no money because in the main, options are fairly priced. However, if you can judge the direction of volatility better than other players (better than the market pricing mechanism for these options), then yes, you can make money, over time. What you cannot do is put on an iron condor every month irrespective of what the volatility of the underlying is. If you do, you will have more winners than losers but your few losers will be larger than your many winners and the trades will work out to zero, given enough time.
That's why I'm asking what Sosnoff means by systematic. As you know, there is no free money lying on the ground. I suspect Sosnoff might be referring to using some kind of systematic assessment of volatility--which would make more sense.
I seem to have touched a nerve somehow and please do not take offense-I mean none. I only want to ensure that less experienced readers do not get the impression that these volatility trades are a sure thing or a holy grail. Also, kindly stop calling me dude-I'm a woman.
Hmm, I think we might be making this too complicated. Maybe we are even on the same side--let's see.
My argument is not really related to whether another person is taking the exact opposite trade. So let's just look at a less complex case. When we are dealing in condors, short straddles, etc. we are hoping for our short options to decline in value. So let's consider the simplest case of selling a put. If I sell a put in the hopes that it will decay, who would buy such a put? People who buy them have an opposite opinion. Yes, some may be buying them as insurance, but other participants are buying puts thinking that they will rise in value over time.
I'm only saying that if you trade these things without any assessment of volatility, over time, you will make no money because in the main, options are fairly priced. However, if you can judge the direction of volatility better than other players (better than the market pricing mechanism for these options), then yes, you can make money, over time. What you cannot do is put on an iron condor every month irrespective of what the volatility of the underlying is. If you do, you will have more winners than losers but your few losers will be larger than your many winners and the trades will work out to zero, given enough time.
That's why I'm asking what Sosnoff means by systematic. As you know, there is no free money lying on the ground. I suspect Sosnoff might be referring to using some kind of systematic assessment of volatility--which would make more sense.
I seem to have touched a nerve somehow and please do not take offense-I mean none. I only want to ensure that less experienced readers do not get the impression that these volatility trades are a sure thing or a holy grail. Also, kindly stop calling me dude-I'm a woman.
http://www.poets.org/poetsorg/poem/mending-wall
"
And he likes having thought of it so well
He says again, ‘Good fences make good neighbors.' "
No nerves were touched
It's just a VERY common misconception in the options world that there is literally another person on the other side of your trades. That's how I read your statement, but if that's not literally what you meant then great, we can move on As far as why someone would be on the other side of your short trades, you already said it. It's because the reason they opened their trades likely is not for the same reason you opened yours. His long puts that you shorted were likely the result of hedging, or a risk reversal type trade, or some other type of spread that uses those puts as one of the legs. Or maybe he's just rolling the dice on an OTM put and he's ok with full loss of capital. In the end, they are just open interest. We can't ever know what composition they came in, and what purpose they were for. You just use some of them to build your own trade, forget the logic of other side.
As far as being systematic, yes you absolutely can sell iron condors month after month blindly without looking at the vol environment. Nobody said it would be profitable, but chances are it would be over a long term period. And if you did that, the expected return would be the volatility risk premium during all those times you had trades open for the strikes you traded, minus commissions. That's literally what it means. The idea of zero sum, or fairly priced, or anything else is a made up number and nonsensical. The VRP by definition is your expected outcome.
Sometimes the VRP is positive, sometimes it's near break even, and sometimes it's negative. Clearly you'd be better off trying to find ways to trade when it's more positive, but systematic Iron Condor selling is just accepting the average of the VRP over that time period, minus commissions.
As to Sosnoff specifically, he only shorts vol when the 52 week IV is above about 40% or so, and the higher the better. Every trader needs to simplify things in a way that makes sense to them. I'm not saying I agree with him, but for him he feels the single most important variable is the 52 week IV reading.