Maximizing the number of occurrences brings total results closer to what is expected statistically.

This leads to greater consistency in both P/L and win rates. tastytrade explains with a 15 year analysis.

]]>Maximizing the number of occurrences brings total results closer to what is expected statistically.

This leads to greater consistency in both P/L and win rates. tastytrade explains with a 15 year analysis.

]]>**The chance of a reversal after a selloff is twice as likely as a reversal after a rally of the same size.**

Since the chance of a 2%+ close is 9%, and the chance of a 2%+ move and reversal that same day is 1%, then for every nine 2%+ closes, expect to see one 2%+ move followed by a reversal.

Tune in as Tom and Tony utilize this information, applying it to recent market activity.

]]>The chance of a reversal after a selloff is twice as likely as a reversal after a rally of the same size.

Since the chance of a 2%+ close is 9%, and the chance of a 2%+ move and reversal that same day is 1%, then for every nine 2%+ closes, expect to see one 2%+ move followed by a reversal.

Tune in as Tom and Tony utilize this information, applying it to recent market activity.

]]>However, when SPY dropped by 3.3% in late February, the VIX spiked by 47%.

And when SPY dropped by 3.3% in early March, the VIX only jumped by 24%.

Since IV tends to be highly inversely correlated with the underlying, we expect movements in the underlying to inversely scale with movements in IV the majority of the time.

However, movements in IV are highly dependent on market context, and today Tom and Tony are going to explore that in more detail.

]]>However, when SPY dropped by 3.3% in late February, the VIX spiked by 47%.

And when SPY dropped by 3.3% in early March, the VIX only jumped by 24%.

Since IV tends to be highly inversely correlated with the underlying, we expect movements in the underlying to inversely scale with movements in IV the majority of the time.

However, movements in IV are highly dependent on market context, and today Tom and Tony are going to explore that in more detail.

]]>Compared to the last ten years, the last three months have observed roughly twice the probability (on daily and weekly intervals) where both the NASDAQ and its IV go up together.

]]>Compared to the last ten years, the last three months have observed roughly twice the probability (on daily and weekly intervals) where both the NASDAQ and its IV go up together.

]]>Today we will dive into some statistics around one of the most popular cryptocurrencies, Bitcoin (BTC).

Join Tom and Tony as they look at correlations, historical volatilities, and the ideal ratio of BTC to SPY for gaining BTC exposure with minimal portfolio volatility.

]]>Today we will dive into some statistics around one of the most popular cryptocurrencies, Bitcoin (BTC).

Join Tom and Tony as they look at correlations, historical volatilities, and the ideal ratio of BTC to SPY for gaining BTC exposure with minimal portfolio volatility.

]]>So, we may wonder how often and how quickly should we expect to see reversals after these extreme moves?

Tom and Tony examine a study done by the Research Team to see how common these occurrences can be. Tune in to see how duration can impact the results.

]]>So, we may wonder how often and how quickly should we expect to see reversals after these extreme moves?

Tom and Tony examine a study done by the Research Team to see how common these occurrences can be. Tune in to see how duration can impact the results.

]]>Today, Tom and Tony discuss the theta of Iron Condors with various wings and its impact on P/L.

]]>Today, Tom and Tony discuss the theta of Iron Condors with various wings and its impact on P/L.

]]>However, on average, trades that had outlier price moves in the underlying were more profitable because outliers tend to cluster, and thus options become priced to anticipate more outliers.

The key is to stay small before the first outlier move (when IV is low) in order to take advantage of the higher premiums that follow.

]]>However, on average, trades that had outlier price moves in the underlying were more profitable because outliers tend to cluster, and thus options become priced to anticipate more outliers.

The key is to stay small before the first outlier move (when IV is low) in order to take advantage of the higher premiums that follow.

]]>However, in the long term how correlated are actively managed strategies with regards to one another?

Today Tom and Tony look at the long term correlation between option strategies to learn more about diversifying option portfolios.

]]>However, in the long term how correlated are actively managed strategies with regards to one another?

Today Tom and Tony look at the long term correlation between option strategies to learn more about diversifying option portfolios.

]]>The more trades we make, the more likely our average P/L is to be closer to the long term historical average of all trades, i.e. less uncertainty.

]]>The more trades we make, the more likely our average P/L is to be closer to the long term historical average of all trades, i.e. less uncertainty.

]]>This formula is based on when the trade expires.

In today’s segment we will dig deeper and run a study to determine how many days on average it takes to touch. Watch to find out the results they may surprise you.

]]>This formula is based on when the trade expires.

In today’s segment we will dig deeper and run a study to determine how many days on average it takes to touch. Watch to find out the results they may surprise you.

]]>New traders may be misled by the lower buying power of tight vertical spreads relating to lower risk, but when comparing these differently sized trades, it’s important to normalize by this buying power amount. One way to compare these trades is to look at the return on capital.

]]>New traders may be misled by the lower buying power of tight vertical spreads relating to lower risk, but when comparing these differently sized trades, it’s important to normalize by this buying power amount. One way to compare these trades is to look at the return on capital.

]]>Historically, the risk and returns from an actively managed portfolio have outperformed a simple buy and hold strategy.

An active options portfolio is estimated to grow much faster and with more certainty than a buy-and-hold portfolio.

]]>Historically, the risk and returns from an actively managed portfolio have outperformed a simple buy and hold strategy.

An active options portfolio is estimated to grow much faster and with more certainty than a buy-and-hold portfolio.

]]>However, if IVR becomes skewed to the upside or downside, it might not accurately represent premium selling conditions.

Today Tom and Tony discuss what happens if we trade using SPY IV instead of IVR, in an attempt to avoid IVR skew.

]]>However, if IVR becomes skewed to the upside or downside, it might not accurately represent premium selling conditions.

Today Tom and Tony discuss what happens if we trade using SPY IV instead of IVR, in an attempt to avoid IVR skew.

]]>However, what about conditional probability around volatility? Are consecutive IV up- or down-days predictive of future behavior?

While consecutive volatility down-days do not have predictive power for future down-days, with more consecutive volatility up-days, future consecutive up-days become less likely.

]]>However, what about conditional probability around volatility? Are consecutive IV up- or down-days predictive of future behavior?

While consecutive volatility down-days do not have predictive power for future down-days, with more consecutive volatility up-days, future consecutive up-days become less likely.

]]>In the worst case, we can assume max loss for tight iron condors, does this hold true for wider spreads? Join Tom and Tony today as they dig deeper.

]]>In the worst case, we can assume max loss for tight iron condors, does this hold true for wider spreads? Join Tom and Tony today as they dig deeper.

]]>In other words, risk and return for a particular trade cannot be manipulated, only understood and managed accordingly.

This study shows how the above statement is true on strategies on liquid underlyings that are diversified (ETFs) over the long term.

]]>In other words, risk and return for a particular trade cannot be manipulated, only understood and managed accordingly.

This study shows how the above statement is true on strategies on liquid underlyings that are diversified (ETFs) over the long term.

]]>In other words, when we start with a low VIX price today, tomorrow's VIX prices follow a much different trend than if today’s VIX price was higher.

]]>In other words, when we start with a low VIX price today, tomorrow's VIX prices follow a much different trend than if today’s VIX price was higher.

]]>So, today we are going to compare the performances with and without managing losers in spreads.

]]>So, today we are going to compare the performances with and without managing losers in spreads.

]]>First we must consider allocation levels which will change based on volatility levels. Higher volatility more capital at work, means more extrinsic value we should be carrying on our books.

What we discover in this segment is a new rule to for the right balance of extrinsic to capital available.

Join Tom and Tony in today’s segment as they dig deeper into this topic.

]]>First we must consider allocation levels which will change based on volatility levels. Higher volatility more capital at work, means more extrinsic value we should be carrying on our books.

What we discover in this segment is a new rule to for the right balance of extrinsic to capital available.

Join Tom and Tony in today’s segment as they dig deeper into this topic.

]]>However, how volatile are the P/Ls of these trades? Can holding these contracts for a longer period of time reduce over P/L volatility?

Today Tom and Tony compare the risks for different management strategies for some tech earnings plays.

]]>However, how volatile are the P/Ls of these trades? Can holding these contracts for a longer period of time reduce over P/L volatility?

Today Tom and Tony compare the risks for different management strategies for some tech earnings plays.

]]>The risk of an entire portfolio can actually be statistically computed from the perspective of one common index (usually SPY) and that makes it easier for traders to know how much directional risk they are exposed to at any given point in time.

Tune in as Tom and Tony explain how to interpret and use this information in an options portfolio.

]]>The risk of an entire portfolio can actually be statistically computed from the perspective of one common index (usually SPY) and that makes it easier for traders to know how much directional risk they are exposed to at any given point in time.

Tune in as Tom and Tony explain how to interpret and use this information in an options portfolio.

]]>But what about their cost of trading?

Today, Tom and Tony discuss the expense ratio for options trading

]]>But what about their cost of trading?

Today, Tom and Tony discuss the expense ratio for options trading

]]>Join Tom and Tony today as they review this very important topic.

]]>Join Tom and Tony today as they review this very important topic.

]]>Today Tom and Tony discuss whether using Outlier Rank changes the probability of large profits or losses when trading SPY strangles.

]]>Today Tom and Tony discuss whether using Outlier Rank changes the probability of large profits or losses when trading SPY strangles.

]]>However, for TSLA, that does not seem to be the case when comparing to an ETF (QQQ).

So then why does the reward for TSLA short options seem to be so large relative to the risk taken?

**The answer lies in another risk metric: IV expansion risk.**

When IV expands it poses a threat to short premium traders, and since the chance of IV expansion in TSLA is rather high, that is one reason why options are so expensive now.

]]>However, for TSLA, that does not seem to be the case when comparing to an ETF (QQQ).

So then why does the reward for TSLA short options seem to be so large relative to the risk taken?

The answer lies in another risk metric: IV expansion risk.

When IV expands it poses a threat to short premium traders, and since the chance of IV expansion in TSLA is rather high, that is one reason why options are so expensive now.

]]>So should we alter our trading to sell weeklies? Today, Tom and Tony discuss the performance of trading weekly strangles

]]>So should we alter our trading to sell weeklies? Today, Tom and Tony discuss the performance of trading weekly strangles

]]>But can we do the same in trading? In short the answer is no because of liquidity. Join Tom and Tony today as they explain why.

]]>But can we do the same in trading? In short the answer is no because of liquidity. Join Tom and Tony today as they explain why.

]]>Our research has shown that trading 16Δ SPY strangles with low OR and high IVR increases average P/L and decreases P/L volatility; however, what about strangles with different deltas?

Today we show whether supplementing high IVR with low OR can improve profitability and reduce volatility for SPY strangles of different deltas.

]]>Our research has shown that trading 16Δ SPY strangles with low OR and high IVR increases average P/L and decreases P/L volatility; however, what about strangles with different deltas?

Today we show whether supplementing high IVR with low OR can improve profitability and reduce volatility for SPY strangles of different deltas.

]]>Today, Tom and Tony discuss the pros and cons of selling two standard deviation strangles.

]]>

Today, Tom and Tony discuss the pros and cons of selling two standard deviation strangles.

]]>

Today we will cover some of the important elements in our trade approach rooted in statistics, and how we use them to help stack the deck in our favor.

]]>Today we will cover some of the important elements in our trade approach rooted in statistics, and how we use them to help stack the deck in our favor.

]]>Our recent studies on trading SPY strangles have shown that average PNL is maximized when trading in high IVR & low OR environments; however, how does OR affect trade volatility?

Today we will analyze PNL volatility for this max average PNL method of trading.

]]>Our recent studies on trading SPY strangles have shown that average PNL is maximized when trading in high IVR & low OR environments; however, how does OR affect trade volatility?

Today we will analyze PNL volatility for this max average PNL method of trading.

]]>**Outlier Rank is a way to estimate how often IV has understated an asset's returns in the past month relative to its long term average.**

Last week, we found that trading in high IVR/low OR environments may give strangle traders a profit edge.

Today we investigate if trading in high IVR/high OR environments (assuming “returns volatility reversion") is also more profitable than conventional trading strategies.

]]>Outlier Rank is a way to estimate how often IV has understated an asset's returns in the past month relative to its long term average.

Last week, we found that trading in high IVR/low OR environments may give strangle traders a profit edge.

Today we investigate if trading in high IVR/high OR environments (assuming “returns volatility reversion") is also more profitable than conventional trading strategies.

]]>When these levels are plotted on a graph, it is call the **term structure of volatility.** Join Tom and Tony in today’s show as they try to simplify this concept.

When these levels are plotted on a graph, it is call the term structure of volatility. Join Tom and Tony in today’s show as they try to simplify this concept.

]]>We look at the historical number of consecutive down days we observed in the market, average VIX levels, and average performance of selling puts.

We conclude that there is no price reversion that exists with down days, but the heightened levels of IV make the puts more profitable when selling into down moves.

]]>We look at the historical number of consecutive down days we observed in the market, average VIX levels, and average performance of selling puts.

We conclude that there is no price reversion that exists with down days, but the heightened levels of IV make the puts more profitable when selling into down moves.

]]>Today Tom and Tony discuss an example of how to estimate the relative amount of outlier risk at a certain time, outlier rank.

We investigate how this can be incorporated into a trading strategy, and how the modified trading strategy performs against trading SPY strangles.

]]>Today Tom and Tony discuss an example of how to estimate the relative amount of outlier risk at a certain time, outlier rank.

We investigate how this can be incorporated into a trading strategy, and how the modified trading strategy performs against trading SPY strangles.

]]>We call the scenario “halting the market” or we might say that the circuit breakers were triggered.

Join Tom and Tony today as they cover this mechanic within the exchange system.

]]>We call the scenario “halting the market” or we might say that the circuit breakers were triggered.

Join Tom and Tony today as they cover this mechanic within the exchange system.

]]>

]]>

Observing the spot price which is referred to simply as the cash market, can be compared to future prices to determine the current premium or discount in the market.

Join Tom and Tony as they review this important topic to understand.

]]>Observing the spot price which is referred to simply as the cash market, can be compared to future prices to determine the current premium or discount in the market.

Join Tom and Tony as they review this important topic to understand.

]]>Today we show how strangles on single company stocks in the tech sector can have PNLs that are nearly 12x more volatile than strangles on ETFs that track the market.

The market (SPY), spanning many different sectors and companies, is inherently diversified and has limited sector- and company-specific risks.

]]>Today we show how strangles on single company stocks in the tech sector can have PNLs that are nearly 12x more volatile than strangles on ETFs that track the market.

The market (SPY), spanning many different sectors and companies, is inherently diversified and has limited sector- and company-specific risks.

]]>Should we use it consistently? Where’s the risk?

Today, Tom and Tony discuss the risk of trading extremely high probability options.

]]>Should we use it consistently? Where’s the risk?

Today, Tom and Tony discuss the risk of trading extremely high probability options.

]]>So how much theta should we have in our portfolio on a daily basis?

Today, Tom and Tony discuss the theta range in a portfolio by allocating 25% of the capital.

]]>So how much theta should we have in our portfolio on a daily basis?

Today, Tom and Tony discuss the theta range in a portfolio by allocating 25% of the capital.

]]>Tom and Tony show an example of how to trade options on the divergence of correlated index pairs using the “IV-Adjusted Notional Rank.”

They will also show how doing so can reduce portfolio volatility, compared to trading strangled on the individual underlyings respectively.

]]>Tom and Tony show an example of how to trade options on the divergence of correlated index pairs using the “IV-Adjusted Notional Rank.”

They will also show how doing so can reduce portfolio volatility, compared to trading strangled on the individual underlyings respectively.

]]>We find that although individual equities’ IVs increase in earnings season, the indexes and the ETFs remain largely unaffected by the IV spike.

]]>We find that although individual equities’ IVs increase in earnings season, the indexes and the ETFs remain largely unaffected by the IV spike.

]]>Today, Tom and Tony discuss the possibility of buying premium after earnings announcement.

]]>Today, Tom and Tony discuss the possibility of buying premium after earnings announcement.

]]>In addition to lowering overall portfolio volatility, diversifying a portfolio also makes it more likely to show positive returns compared to betting on the performance of a single stock.

Tom and Tony show an example of how diversifying a portfolio with elements from the S&P 500 makes the portfolio more likely to perform as well as the market.

]]>In addition to lowering overall portfolio volatility, diversifying a portfolio also makes it more likely to show positive returns compared to betting on the performance of a single stock.

Tom and Tony show an example of how diversifying a portfolio with elements from the S&P 500 makes the portfolio more likely to perform as well as the market.

]]>This is due to the inherent diversification present in options since their price depends on underlying movement, time, and volatility.

Since outright stocks do not have multiple components making up their price movements, their diversification potential is limited.

]]>This is due to the inherent diversification present in options since their price depends on underlying movement, time, and volatility.

Since outright stocks do not have multiple components making up their price movements, their diversification potential is limited.

]]>Today we show an example of how adding market-neutral and market-inverse assets to a portfolio of stocks with high market exposure can reduce overall portfolio market correlation and volatility.

]]>Today we show an example of how adding market-neutral and market-inverse assets to a portfolio of stocks with high market exposure can reduce overall portfolio market correlation and volatility.

]]>After a year of market complacency, IVR can be affected by very small movements in IV, thus when IV jumps very small, IVR can overestimate the inflation in IV.

So what do we make our threshold for selling premium after a year where VIX does not breach 20?

]]>After a year of market complacency, IVR can be affected by very small movements in IV, thus when IV jumps very small, IVR can overestimate the inflation in IV.

So what do we make our threshold for selling premium after a year where VIX does not breach 20?

]]>Today we are going to cover this topic in more detail to determine how likely IV contraction is at some IVR, given whether there were IV outliers in the previous year.

We find that, although selling premium for IVR > 30 is a good rule of thumb on average, this threshold tends to vary in the context of outlier events.

]]>Today we are going to cover this topic in more detail to determine how likely IV contraction is at some IVR, given whether there were IV outliers in the previous year.

We find that, although selling premium for IVR > 30 is a good rule of thumb on average, this threshold tends to vary in the context of outlier events.

]]>This is especially of interest now, as IV is still elevated from this recent selloff and prone to large moves.

Today we discuss how to quantify this risk from volatility-sensitivity and how problematic it may be to premium sellers in high IV environments.

]]>This is especially of interest now, as IV is still elevated from this recent selloff and prone to large moves.

Today we discuss how to quantify this risk from volatility-sensitivity and how problematic it may be to premium sellers in high IV environments.

]]>For short premium strategies, we will typically look to manage at 50% or exit out around 21 days until expiration.

But why is this and what are the advantages/ drawdowns of active management?

]]>For short premium strategies, we will typically look to manage at 50% or exit out around 21 days until expiration.

But why is this and what are the advantages/ drawdowns of active management?

]]>So what about 45-day options strategies initiated in earnings season?

Today, Tom and Tony show you the performances of index options around earnings announcements.

]]>So what about 45-day options strategies initiated in earnings season?

Today, Tom and Tony show you the performances of index options around earnings announcements.

]]>Due to starting off at record highs and coming into extreme volatility, 2020 has experienced the largest ranges in history.

]]>Due to starting off at record highs and coming into extreme volatility, 2020 has experienced the largest ranges in history.

]]>In today's study, we take a deeper look into how this relationship plays out, and if it is indeed a balanced scale.

]]>In today's study, we take a deeper look into how this relationship plays out, and if it is indeed a balanced scale.

]]>Tom and Tony discuss some of the worst losses option traders can expect from short strangle positions, and how likely they are to occur.

We find that short premium positions tend to have infrequent, but substantial losses and are much more likely to have small, but high probability positive returns.

]]>Tom and Tony discuss some of the worst losses option traders can expect from short strangle positions, and how likely they are to occur.

We find that short premium positions tend to have infrequent, but substantial losses and are much more likely to have small, but high probability positive returns.

]]>In this Market Measures, tastytrade shows how to control for three main risk factors associated with trading options.

]]>In this Market Measures, tastytrade shows how to control for three main risk factors associated with trading options.

]]>When we define the risk what are things to keep in mind:

- The range of the POP profile given a delta changes
- How the width of a spread can be adjusted to fit risk preferences
- How changing delta ultimately affects risk

Join the guys in today’s segment where they consider the various ways to incrementally adjust risk.

]]>When we define the risk what are things to keep in mind:

- The range of the POP profile given a delta changes
- How the width of a spread can be adjusted to fit risk preferences
- How changing delta ultimately affects risk

Join the guys in today’s segment where they consider the various ways to incrementally adjust risk.

]]>The Research Team dives deep into this concept and provides context around this move in 2020 compared to other moves in history including 2008.

]]>The Research Team dives deep into this concept and provides context around this move in 2020 compared to other moves in history including 2008.

]]>However other factors, such as the price of the underlying, also contribute significantly to option prices.

Today we discuss the correlation between option prices and the price of the underlying on days with large market movements, and how it might differ from our intuition.

]]>However other factors, such as the price of the underlying, also contribute significantly to option prices.

Today we discuss the correlation between option prices and the price of the underlying on days with large market movements, and how it might differ from our intuition.

]]>Decision making in trading doesn’t have to be a gut decision. We can not only put rules we can use probabilities as well.

Tom and Tony walk through a few ways tastytrade aims to ease decisions when setting up positions and managing a portfolio.

]]>Decision making in trading doesn’t have to be a gut decision. We can not only put rules we can use probabilities as well.

Tom and Tony walk through a few ways tastytrade aims to ease decisions when setting up positions and managing a portfolio.

]]>tastytrade discusses how strangles of various deltas have performed in different types of selloffs compared to the long term average, and the types of losses to expect in selloffs of different velocities.

]]>tastytrade discusses how strangles of various deltas have performed in different types of selloffs compared to the long term average, and the types of losses to expect in selloffs of different velocities.

]]>To quantify risk, we will look to the volatility index, The VIX.

Currently, the VIX is exceptionally high trading over 40.

Today, we take a look at what this actually means things we should look for and things we might want to avoid.

]]>To quantify risk, we will look to the volatility index, The VIX.

Currently, the VIX is exceptionally high trading over 40.

Today, we take a look at what this actually means things we should look for and things we might want to avoid.

]]>Generally, the VIX increases as there are more down days AND the magnitude of those down days increase. However, if there is a mild down day amidst the larger down days, VIX may actually decline on the mild down day because the magnitude of said down day was not as bad as recently experienced by the market.

]]>Generally, the VIX increases as there are more down days AND the magnitude of those down days increase. However, if there is a mild down day amidst the larger down days, VIX may actually decline on the mild down day because the magnitude of said down day was not as bad as recently experienced by the market.

]]>Compare this to 2008 where 90% of the losses came from normal trading hours.

]]>Compare this to 2008 where 90% of the losses came from normal trading hours.

]]>When utilizing undefined risk strategies in IRAs, simply buy the 5 delta option to accompany the short option position. This will make your average buying power required for that trade roughly the same as a margin account while keeping the risk/return profile of the overall position the same. The capital allocation rules we have for margin accounts will now apply to IRAs as well.

]]>When utilizing undefined risk strategies in IRAs, simply buy the 5 delta option to accompany the short option position. This will make your average buying power required for that trade roughly the same as a margin account while keeping the risk/return profile of the overall position the same. The capital allocation rules we have for margin accounts will now apply to IRAs as well.

]]>- SPY, 2005 to present
- 45 DTE
- Sold 30∆ Strangles (short 30∆ put and short 30∆ call) the day before an outlier move (+- 3, 4, and 5%)
- Held to expiration in order to study the entire 45 day period
- Observed the effects of the outlier move on the strangle P/L

We find that initially, our positions take a hit due to the outlier move, but at the end of the trade, our positions were profitable on average.

]]>- SPY, 2005 to present
- 45 DTE
- Sold 30∆ Strangles (short 30∆ put and short 30∆ call) the day before an outlier move (+- 3, 4, and 5%)
- Held to expiration in order to study the entire 45 day period
- Observed the effects of the outlier move on the strangle P/L

We find that initially, our positions take a hit due to the outlier move, but at the end of the trade, our positions were profitable on average.

]]>In other words, if a large move (greater than 2% in magnitude) is observed on any given day, there is a greater chance to see another large move tomorrow than the chance of seeing a large move on any given market day.

In fact, if we have a 5% move today, it is 37 times more likely to see another 5% move the next day than a 5% move on any given market day.

]]>In other words, if a large move (greater than 2% in magnitude) is observed on any given day, there is a greater chance to see another large move tomorrow than the chance of seeing a large move on any given market day.

In fact, if we have a 5% move today, it is 37 times more likely to see another 5% move the next day than a 5% move on any given market day.

]]>tastytrade runs an extensive study that looks at the performance of all days relative to the performance of unemployment report days.

We find that there is no statistical evidence that unemployment report days carry any different returns or volatility than a randomly selected market day.

]]>tastytrade runs an extensive study that looks at the performance of all days relative to the performance of unemployment report days.

We find that there is no statistical evidence that unemployment report days carry any different returns or volatility than a randomly selected market day.

]]>We have to consider account size, risk tolerance, and desired daily P/L as our metrics that determine the types of underlyings to trade and the strategy to employ.

When looking at “types of underlyings” we have two generic classifications: individual stocks and ETFs. For strategies: we have defined and undefined risk trades.

Ultimately for lower risk, lower P/L and smaller accounts, investors may consider defining risk or trading ETFs as opposed to individual stocks. On the flip side for higher risk, higher P/L and larger accounts, undefined risk trades and individual stocks may fit better.

]]>We have to consider account size, risk tolerance, and desired daily P/L as our metrics that determine the types of underlyings to trade and the strategy to employ.

When looking at “types of underlyings” we have two generic classifications: individual stocks and ETFs. For strategies: we have defined and undefined risk trades.

Ultimately for lower risk, lower P/L and smaller accounts, investors may consider defining risk or trading ETFs as opposed to individual stocks. On the flip side for higher risk, higher P/L and larger accounts, undefined risk trades and individual stocks may fit better.

]]>In this segment, we take a look at why buying options is, on average, not a profitable long term strategy from both a historical performance lens and a conceptual lens (analyzing implied volatility versus realized volatility).

We find that the only time buying options is profitable is the period right before a selloff, but since timing markets is nearly impossible, the strategy is not feasible long term.

]]>In this segment, we take a look at why buying options is, on average, not a profitable long term strategy from both a historical performance lens and a conceptual lens (analyzing implied volatility versus realized volatility).

We find that the only time buying options is profitable is the period right before a selloff, but since timing markets is nearly impossible, the strategy is not feasible long term.

]]>- S&P 500, 1970 to present
- Recorded all recessions since 1970
- Recorded number of large selloffs greater than 1% in each quarter

We find that the number of large down days is actually greatest in the quarter *before* the first quarter of a recession. During the recession, there are typically more down days than the average quarter, but not as many as the quarter preceding the recession.

- S&P 500, 1970 to present
- Recorded all recessions since 1970
- Recorded number of large selloffs greater than 1% in each quarter

We find that the number of large down days is actually greatest in the quarter *before* the first quarter of a recession. During the recession, there are typically more down days than the average quarter, but not as many as the quarter preceding the recession.

What would have happened if traders started trading options at the top of 2008 before the crash? Tom and Tony examine some research to uncover the answer.

]]>What would have happened if traders started trading options at the top of 2008 before the crash? Tom and Tony examine some research to uncover the answer.

]]>We explore this by comparing the current market situation and the financial crisis in 2008.

]]>We explore this by comparing the current market situation and the financial crisis in 2008.

]]>We find that in this selloff, we had the largest underestimation of market volatility in history where the actual volatility was five times higher than what was predicted by implied volatility.

]]>We find that in this selloff, we had the largest underestimation of market volatility in history where the actual volatility was five times higher than what was predicted by implied volatility.

]]>