# Which option strategy to apply for this market outlook?



## amiuser (21 September 2015)

My *outlook* to a stock option is as follows ...

 expiration days pending = *30 days*

(i) *stock may stay flat till expiration.*

(ii) *very bearish* on the stock

(ii) very *little *pull back


Could you please name which Option Strategy  is suitable for such outlook ?


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## wayneL (21 September 2015)

amiuser said:


> My *outlook* to a stock option is as follows ...
> 
> expiration days pending = *30 days*
> 
> ...




Whadayawanna play, flat or bearish. Or a hedged scenario?

What is IV and relative IV?

More information is better.


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## amiuser (21 September 2015)

Here is the reply to your queries ..



wayneL said:


> Whadayawanna play, flat or bearish. Or a hedged scenario?




I want to be positional . No intraday. .......presently this month contract has just  ended....next month contract is going to begin tomorrow(expiration is after 30 days)....I want to play next month contract starting now.

Regarding  flat or bearish, I have positional outlook as mostly flat or bearish and a minor pullback.

Regarding  hedged , Yes...I would love to  do the hedging and go for a sound sleep....happy to sacrifice  little profit......will prefer minimum 1:2  Risk/Reward ratio....and high probability of winning.



> What is IV and relative IV?





IV is high compared to historical IV


Hope this information is fine with you. Could you please guide ?

Thanks for the post.


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## hhse (21 September 2015)

What market - makes a big difference.


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## amiuser (21 September 2015)

hhse said:


> What market - makes a big difference.



Equity Market.


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## hhse (21 September 2015)

amiuser said:


> Equity Market.




Sorry I was not specific enough. Reason being is that if you are talking about the ASX, there is really no point in doing spreads because the bid & ask is too wide, and you end up losing too much edge

In regards to different strategies for neutral to bearish in high implied IV rank, includes but not limited to:

(1) Naked Call (credit)
(2) Call Credit Spread (credit)
(3) Skewed Iron Condor (credit)
(4) Broken wing butterfly (debit)
(5) Covered Put (sell stock, sell put) 

In regards to managing risk, if you are in the ASX market where there are wider bid & ask spread, strategies (1) & (5) would be more appropriate, and you would go about adjusting risk by trading small amounts of contract.

If you are trading in a market with more liquidity with 1 or 2 cent wide bid/ask, then any of the strategies are fine.
Strategies 2, 3 & 4 are defined risk trades.

You define your probability of success by max loss on strike width for defined risk trade & for the naked call, display delta for call you are selling and it will give you a proxy of probability of ITM. For the covered call, check the delta of the corresponding put.

For all positions, close at 50% max profit. And for naked positions, consider closing at 2 x credit loss. Defined risk you only close winning.

Above is only general guide, and normal disclaimer applies - that it is only an opinion and not advice.


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## amiuser (21 September 2015)

hhse said:


> Sorry I was not specific enough. Reason being is that if you are talking about the ASX, there is really no point in doing spreads because the bid & ask is too wide, and you end up losing too much edge
> 
> In regards to different strategies for neutral to bearish in high implied IV rank, includes but not limited to:
> 
> ...




Thanks for the post.

bid/ask is good in my stock...acceptable range.

Please dont get me wrong ... I would like to post few criticisms on your remark for a healthy discussion.

I already had some homework on my own....and so  posting some concerns here

some issues I find here is ..

(3) & (4) ...have not  studied much .....but it seems too many legs here ...is it ?... ..high transaction cost......difficult to manage....I dont feel comfortable with this.  

(1) ....high risk...sleep less night ...sudden up surge ...I am busted.

(2) ...good ....but I have 30 days to expiration...I think this works fine when you are 1/2 weeks prior to expiration

(5) stop loss required for stock separately ...afraid of gap up


I actually don't like  your strategies much....*.I  want a conservative , consistent , higher winning probability , lower risk , good  reward  directional Strategy.
*

in simple words ..my broad view is

If stock goes down....I want to earn money
If stock is flat....I may/may not  want to earn money.....but surely don't want to loose 
If stock is up....I want to loose money..but want to loose small & limited .

You know ....I have a strategy in my mind though  ...but I am not sure if this fits the bell ...Could you please comment on this Startegy.

Bear Put Spread*(debit*) - I  think risk/reward is limited here ...*but risk:reward is not 1:2* ..this is a concern to me...  .also since new month contract has just started......I have the entire month now....do you think this will  be good Strategy in my expected stock broad view ?

Having said these definitely I'll look at 3 & 4 for more information .....and thanks for your post & time.


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## hhse (21 September 2015)

amiuser said:


> Thanks for the post.
> Bear Put Spread*(debit*) - I like this Strategy ..coz its hedged ...risk/reward is also limited ...*but risk:reward is not 1:2* ..this is a concern to me...  .also since new month contract has just started......I have the entire month now....do you think it would be good Strategy before its too far from expiration ?




Your comment of High Implied IV rank already ruled that out as an ideal strategy. You will not find a reward risk of 1:2 with high probability of success. 30-55 days is good duration, 45 optimal.

And as mentioned before, risk can be managed either via defined risk OR keeping your position size small.


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## amiuser (21 September 2015)

hhse said:


> Your comment of High Implied IV rank already ruled that out as an ideal strategy.



correct.

How about BEAR CALL SPREAD ?



> You will not find a reward risk of 1:2 with high probability of success. 30-55 days is good duration, 45 optimal.




How much winning percentage 3 & 4 normally will give ?  approx ?

I assume you mean I can apply your Strategies safely if I am 30 days far from expiration.



> And as mentioned before, risk can be managed either via defined risk OR keeping your position size small.



correct.... we dont have micro size lots ....so I can not go with the position sizing....I'll prefer defined risk.

Thanks for the post.


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## hhse (21 September 2015)

amiuser said:


> correct.
> 
> How about BEAR CALL SPREAD ?
> 
> ...




Bear Call Spread, Credit Call Spread same thing different name. You can modify your risk profile by either widening strike between short call & long call and/or by varying the distance of short call. The probability of success is the max loss divided by width of strike.

Other two strategies though will have negative delta (i.e bearish), you can still lose money/not make money if it goes too far down, so maybe just skip that and research in your own time.

If you are still unsure of what strikes to pick, start out at one standard deviation (i.e sell the call spread where you get 1/3rd width of the strike). Close-out at 50% of max profit (i.e 1/6th width of strike profit) - this would provide just over 70% pop even though implied would be 66%.


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## amiuser (21 September 2015)

hhse said:


> Bear Call Spread, Credit Call Spread same thing different name. You can modify your risk profile by either widening strike between short call & long call and/or by varying the distance of short call. The probability of success is the max loss divided by width of strike.
> 
> Other two strategies though will have negative delta (i.e bearish), you can still lose money/not make money if it goes too far down, so maybe just skip that and research in your own time.
> 
> If you are still unsure of *what strikes to pick, start out at one standard deviation (i.e sell the call spread where you get 1/3rd width of the strike)*. *Close-out at 50% of max profit (i.e 1/6th width of strike profit)* - this would provide just over 70% pop even though implied would be 66%.




I am willing to take a call on *(2) Call Credit Spread* ..........I am happy as you said  30 days to expire is also good enough for Credit Spread.

But I did not understand that blue part of  your comment....an example will be excellent in this context.

Let me take an hypothetical example.

say stock is trading at 100$
So you are saying 100 + 68% (since 1 SD=68%) = 168 is the strike price where I should sell Call....fair enough.......what is the long Call Strike I should choose ? Is there any similar rule for that ?

Also what is Close-out at 50% of max profit (i.e 1/6th width of strike profit)  ?  I dont get this part.

Thanks for the help and your time.


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## hhse (21 September 2015)

Lets say XYZ is $50. To execute trade, you will need to sell a call & buy a call further OTM.

So lets say XYZ $52 strike is $1 and $53 dollars is 67cent. Then the width of strikes is difference between $53 & $52 dollars (1 dollar width). Also, the credit you will collect is $1 - $0.67 = $0.33. Therefore your probability of success in this trade is ($1-$0.33)/$1 = 67% probability of success. Your max loss is $0.67 dollars and max profit is $0.33.

However, you'd want to close-out when you can buy back the spread for about $0.16.


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## amiuser (21 September 2015)

hhse said:


> Lets say XYZ is $50. To execute trade, you will need to sell a call & buy a call further OTM.
> 
> So lets say XYZ $52 strike is $1 and $53 dollars is 67cent. Then the width of strikes is difference between $53 & $52 dollars (1 dollar width). Also, the credit you will collect is $1 - $0.67 = $0.33. Therefore your probability of success in this trade is ($1-$0.33)/$1 = 67% probability of success. Your max loss is $0.67 dollars and max profit is $0.33.
> 
> However, you'd want to close-out when you can buy back the spread for about $0.16.




have some query here.

I understand you would favour to close the trade as soon as 50% profit is achieved....you want a slice ...not the full cake...fine.

but what I fail to understand is , shall I  take a wider strike difference or a narrower strike difference.....I am unable to decide this part....what is the best practice here ?


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## hhse (21 September 2015)

amiuser said:


> have some query here.
> 
> I understand you would favour to close the trade as soon as 50% profit is achieved....you want a slice ...not the full cake...fine.
> 
> but what I fail to understand is , shall I  take a wider strike difference or a narrower strike difference.....I am unable to decide this part....what is the best practice here ?




Well there are two ways to scale your trade, either increase the number of contracts you do OR widen the strikes.
The latter is preferable as your probability of profit is better.


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## wayneL (22 September 2015)

hhse said:


> For all positions, close at 50% max profit. And for naked positions, consider closing at 2 x credit loss. Defined risk you only close winning.
> 
> Above is only general guide, and normal disclaimer applies - that it is only an opinion and not advice.




I don't get this advice hhse.

Closing of a position is relative to risk taken and probability of profit/loss, vis a vis expectancy. It may make sense in YOUR overall trading plan, but may not be good advice for someone else doing things a bit differently.

However taking partial profits makes sense in a host of circumstances, when future risk/reward/probability becomes unfavourable.


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## hhse (22 September 2015)

wayneL said:


> I don't get this advice hhse.




As I said, was not advice, just an opinion.
Opinion is based on studies from Tom Sosnoffs research team. Closing early also reduces gamma risk.


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## amiuser (22 September 2015)

hhse said:


> As I said, was not advice, just an opinion.
> Opinion is based on studies from *Tom Sosnoffs *research team. Closing early also reduces gamma risk.




I saw few videos from tastytrade  & few material of thinkorswim platform.

I  have feeling that they advocated for this starategy when expiration is very close..2 weeks .....

But I just started a new month expiry ...I have 30 days to expire ...I am not getting decent premium credit also.


I was thinking another Strategy...As I said my outlook is  bearish & flat market ...little minor pulback will also be there

How about ...
*Sell future + sell an OTM put and buy OTM call*......do you see any issue with Strategy ?  

my only concern is  when time goes by I dont want to punished.

any comments to this Strategy ?


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## wayneL (22 September 2015)

hhse said:


> As I said, was not advice, just an opinion.
> Opinion is based on studies from Tom Sosnoffs research team. Closing early also reduces gamma risk.




My point is that it with without context. Nothing wrong if it is framed by other trading vectors as mentioned, but worthless without. 

Please don't take offence, but it must be framed by those other things.


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## mazzatelli (22 September 2015)

hhse said:


> As I said, was not advice, just an opinion.
> Opinion is based on studies from Tom Sosnoffs research team. Closing early also reduces gamma risk.




Tom Sosnoff's team also likes you to trade condors and butterflies as much as possible - more legs, more brokerage fees for them.


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## amiuser (22 September 2015)

@waynl,

which Strategy you would like to deploy in such case  ?
comments please


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## hhse (22 September 2015)

wayneL said:


> My point is that it with without context. Nothing wrong if it is framed by other trading vectors as mentioned, but worthless without.
> 
> Please don't take offence, but it must be framed by those other things.




No offence taken.

But I don't understand what you mean by "other trading vectors".


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## wayneL (22 September 2015)

mazzatelli said:


> Tom Sosnoff's team also likes you to trade condors and butterflies as much as possible - more legs, more brokerage fees for them.




Good to see ya Mazza, how goes it?


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## wayneL (22 September 2015)

hhse said:


> No offence taken.
> 
> But I don't understand what you mean by "other trading vectors".




Risk

Probabilities

Money management


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## hhse (22 September 2015)

wayneL said:


> Risk
> 
> Probabilities
> 
> Money management




Cool. Point taken.


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## minwa (22 September 2015)

Probability of profit of an options strategy is misleading. It assumes you hold until expiry, no matter the profit/draw down (even wiped account). At the time of putting any trade on, your probability is 50% (actually less after commissions). It can go in your favor or against you, by selling a far OTM strike does not make it more likely for the underlying to move away from that strike.

Also just note Tastytrade crowd had a very tough time last month when volatility exploded. The forum i visited had people who've had built up profits past few months and wiped it all and more just that one week, and discussion of options selling has died down significantly, lol. I'm sure there are more that didn't post who would've suffered major draw downs.


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## hhse (23 September 2015)

minwa said:


> Probability of profit of an options strategy is misleading. It assumes you hold until expiry, no matter the profit/draw down (even wiped account). At the time of putting any trade on, your probability is 50% (actually less after commissions). It can go in your favor or against you, by selling a far OTM strike does not make it more likely for the underlying to move away from that strike.
> 
> Also just note Tastytrade crowd had a very tough time last month when volatility exploded. The forum i visited had people who've had built up profits past few months and wiped it all and more just that one week, and discussion of options selling has died down significantly, lol. I'm sure there are more that didn't post who would've suffered major draw downs.




I just felt that comment was very ill-informed on many levels... either that or poorly phrased.


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## minwa (23 September 2015)

hhse said:


> I just felt that comment was very ill-informed on many levels... either that or poorly phrased.




Do elaborate.


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## wayneL (23 September 2015)

minwa said:


> Probability of profit of an options strategy is misleading. It assumes you hold until expiry, no matter the profit/draw down (even wiped account). At the time of putting any trade on, your probability is 50% (actually less after commissions). It can go in your favor or against you, by selling a far OTM strike does not make it more likely for the underlying to move away from that strike.




It's a good point not to use expiry payoff diagrams as an indicator of probability, agree, unless fully intending to hold til expiry (which in some cases may be the intention).

But you have made an equally egregious assumption that greeks don't immediately, or very quickly, come into play, or for instances of delta neutrality.

Your comments do raise the issue of the complexity in assessing and estimating probabilities.



> Also just note Tastytrade crowd had a very tough time last month when volatility exploded. The forum i visited had people who've had built up profits past few months and wiped it all and more just that one week, and discussion of options selling has died down significantly, lol. I'm sure there are more that didn't post who would've suffered major draw downs.




Which is why I'm big on those other 'vectors' I've mentioned. Robust money management, that gold standard of technical and trend traders of underlying securities, is seldom mentioned or used amongst option traders, especially sellers. Hence the risk of ruin is often way into the freakin' red line.

Pennies in from of steam rollers indeed.


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## hhse (23 September 2015)

Like I said you've either carelessly phrased things, or are very ill-informed of the product.



minwa said:


> Probability of profit of an options strategy is misleading. It assumes you hold until expiry, no matter the profit/draw down (even wiped account)



- you are assuming that people think and trade like yourself with 100% of their bankroll in concentrated correlated trades... otherwise, I don't understand how you got to an account being wiped? A draw down is a draw down, how does that affect POP?
- I believe that is how options pricing model works? You put in a DTE and you can deduce POP based on that DTE? How is that misleading?
- Over the last ten years, it has been shown that implied volatility has been above actual volatility in the SPY. And test, after test, after test of different US ETFs has shown that implied volatility has exceeded actual volatility.



minwa said:


> At the time of putting any trade on, your probability is 50% (actually less after commissions).



- Are you claiming that the options pricing model used by the world is wrong? You should submit your thesis and you may be up for a Nobel prize. Last time I checked, if I was putting on a 0.30 delta Put, my POP would be higher than a 0.50 delta put.



minwa said:


> It can go in your favor or against you, by selling a far OTM strike does not make it more likely for the underlying to move away from that strike.



- I agree. But who said that movements it delta was the only way you'd profit from options? You are forgetting Theta and Vega.



minwa said:


> Also just note Tastytrade crowd had a very tough time last month when volatility exploded



- Sure. I'm sure people holding stock had a fantastic time.
- And considering you've taken the time to understand the domain and their teachings, I'm sure you are spending 100% of your bankroll all on bullish trades, short premium trades at a VIX of 12-13 because that is precisely what they have been preaching (in case you did not realise, that was sarcasm, and it is the exact opposite of the teachings).



minwa said:


> The forum i visited had people who've had built up profits past few months and wiped it all and more just that one week and discussion of options selling has died down significantly, lol. I'm sure there are more that didn't post who would've suffered major draw downs.



- they will learn from their mistakes.
- they will understand the need to stay small and uncorrelated.
- they will understand why an SPY beta weighted short delta is important, when short premium.
- the above is preached show, after show, after show, after show... if people don't heed their warning, nothing they can do, that is on the trader, not the teachings.

Anyway, we obviously share different views, and I won't go on. *I'll keep my posts only to 'theoretical'/'dictionary' and refrain from what I believe to be practical comments going forward*


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## aarbee (23 September 2015)

hhse,

Very well said. I had a significant intra-trade drawdown during that volatility spike but ended up just fine mainly due to holding my nerve and having been small to begin with. Tried to exploit the high vol by selling more premium but found that the liquidity had all but dried up. The market was in  panic mode. Great learning experience trading through that phase with a portfolio with net long deltas and short premium. 

best regards


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## minwa (23 September 2015)

> - you are assuming that people think and trade like yourself with 100% of their bankroll in concentrated correlated trades... otherwise, I don't understand how you got to an account being wiped? A draw down is a draw down, how does that affect POP?
> - I believe that is how options pricing model works? You put in a DTE and you can deduce POP based on that DTE? How is that misleading?
> - Over the last ten years, it has been shown that implied volatility has been above actual volatility in the SPY. And test, after test, after test of different US ETFs has shown that implied volatility has exceeded actual volatility.



It is how it is ADVERTISED and how people MISUSE it that makes it misleading. A draw down certainly affects REAL WORLD PoP. What use is a 95% PoP at expiry, a far OTM sold option, if at some point during the duration of the move you get a pop in vol, you would most certainly have stopped it out or got margin called.



> - Are you claiming that the options pricing model used by the world is wrong? You should submit your thesis and you may be up for a Nobel prize. Last time I checked, if I was putting on a 0.30 delta Put, my POP would be higher than a 0.50 delta put.




Nop I don't claim they're wrong or right, they are all "models", not absolutes. Otherwise there wouldn't be a Binomial AND a Black-Scholes model (and many others). So which one do you claim is right and which is wrong ? Did you even know that there was more than one pricing model since you seem pretty convinced the one you watch is "right" ?




> - Sure. I'm sure people holding stock had a fantastic time.
> - And considering you've taken the time to understand the domain and their teachings, I'm sure you are spending 100% of your bankroll all on bullish trades, short premium trades at a VIX of 12-13 because that is precisely what they have been preaching (in case you did not realise, that was sarcasm, and it is the exact opposite of the teachings).




People holding stocks don't have exponential losses compounded during the big drop like short naked options will. In their "research" they show "Over the past 5 years, had you sold XX strangle/straddle, with XX stop, you would've made XX% return, with XX number of weeks wins and XX number of week losses" which is absolutely giving the impression that you should be in the market, all the time.




> - they will learn from their mistakes.
> - they will understand the need to stay small and uncorrelated.
> - they will understand why an SPY beta weighted short delta is important, when short premium.
> - the above is preached show, after show, after show, after show... if people don't heed their warning, nothing they can do, that is on the trader, not the teachings.




A good trader will, unfortunately many have suffered major draw downs and have walked away from options selling. There lies the problems of the show - most people will take the exciting bits and not the bits to handle when black swans happen. They will try to imitate Karens strategy, yet they cannot manage like Karen, so when vol explodes, they freeze and watch their accounts deteriorate.





> or are very ill-informed of the product.




Perhaps..







But I did manage to pick up an entry level employee's yearly salary this week so my misinformation are paying off. Would you like to see previous few week's/month's  ? When I see bruised up put sellers (T2W, ET, BMT forums ie a lot of Tastytrader/Karen imitators) is my signal to jump in.


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## CanOz (23 September 2015)

Boooyaaah! Nice work minwa!


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## hhse (24 September 2015)

You still have not explained how you go to these calculations:

*
At the time of putting any trade on, your probability is 50% (actually less after commissions). It can go in your favor or against you, by selling a far OTM strike does not make it more likely for the underlying to move away from that strike.
*

Whether it be under black scholes or binomial pricing models, all trades are clearly not equal and clearly not 50/50 chance of success or less. So please do explain your calculations.

And you clearly keep talking about things being misleading. None of them are misleading. If you are saying that people misinterpret and inappropriately apply concepts then that's fine I agree but you should be more specific and say so - check your original post.

But when you claim that things are misleading or that people misrepresent information, that is a big, big accusation that you need to justify.

When studies are performed, you need decent sample sizes and assumptions are laid out. These are clearly stated in the studies. And as I've mentioned before, if people ignore them, that is on the trader, not the teachings.

You keep talking about all these put options being sold and people suffering from them. That is on them - the trader. Segment, after segment, after segment they reiterate the importance of staying small, being short deltas, small sizes and not being complacent about the low VIX. People ignore these warnings, are hurt, and then you make a generalisation...

We clearly don't see eye to eye. I'll leave these forum to 'experts' like yourself.


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## minwa (24 September 2015)

hhse said:


> You still have not explained how you go to these calculations:
> 
> *
> At the time of putting any trade on, your probability is 50% (actually less after commissions). It can go in your favor or against you, by selling a far OTM strike does not make it more likely for the underlying to move away from that strike.
> ...




Read it again, note this part "At the time of putting any trade on".



> And you clearly keep talking about things being misleading. None of them are misleading. If you are saying that people misinterpret and inappropriately apply concepts then that's fine I agree but you should be more specific and say so - check your original post.
> 
> But when you claim that things are misleading or that people misrepresent information, that is a big, big accusation that you need to justify.
> 
> ...




Not a generalisation - it is a statistic that is close to a fact that many agree on - that 90% of traders fail. Reflected in many posts on different forums options selling threads. Except in options selling it gives a false sense of confidence/hope first until everything falls apart. Why do you think there are so many spruikers/educators in the options selling education business ? Platinum Pursuits/Daniel Kercher/Traderscircle/Jamie Mcintyre/21st Century/Elite Traders/Aussie Rob..I'm sure theres many I missed. They all teach mainly OTM naked puts/covered calls/credit spreads - very similar to Tastytrade. Do you see many glowing reviews of them on this forum ?




> We clearly don't see eye to eye. I'll leave these forum to 'experts' like yourself.




Ok cya - any hope of this being a civilised discussion ended when you started with the sarcasm about Nobel Prizes. I am very arrogant and prone to those type of insult bait. We are way off topic anyway.


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## aarbee (24 September 2015)

minwa said:


> Platinum Pursuits/Daniel Kercher/Traderscircle/Jamie Mcintyre/21st Century/Elite Traders/Aussie Rob..I'm sure theres many I missed. They all teach mainly OTM naked puts/covered calls/credit spreads - very similar to Tastytrade. Do you see many glowing reviews of them on this forum ?




Hmmm...with due respect minwa, mentioning tasty trade with your exalted list of spruikers is a drawing a long bow, is it not?? None of them trade or teach to trade like tastytrade. None of them are transparent like tastytrade. For starters tastytrade is not asking anyone for a penny for whatever they are doing for their viewers. Unless I get evidence to the contrary, I consider them to have that rare in trading world commodity "integrity" 

Most option sellers failure  is not indicative of the failure of that strategy or the teaching thereof. Yes it has traps, yes one can blow out and that's why it is important to first gain knowledge and experience with baby steps. You will be well aware that most trend followers fail too. It is said of the traders in general or for that matter, business start-ups too. Trading is a hard gig. No one at tastytrade ever said it is easy unlike the others on your spruikers list.  Good on you for making those profits during "that week". If that performance you showed is typical of your long options strategies, consistent and not an outlier, I congratulate you whole-heartedly on your success. There isn't a reason for you to change a thing and in your place, I perhaps would have the same view as yours.  

For most mere mortals, that sort of performance would be either an outlier or selective and perhaps, plodding along building "numbers of occurrences" to let probabilities work in your favour, over time might not be the worse thing to do. 

Cheers


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## minwa (25 September 2015)

> Hmmm...with due respect minwa, mentioning tasty trade with your exalted list of spruikers is a drawing a long bow, is it not?? None of them trade or teach to trade like tastytrade. None of them are transparent like tastytrade. For starters tastytrade is not asking anyone for a penny for whatever they are doing for their viewers. Unless I get evidence to the contrary, I consider them to have that rare in trading world commodity "integrity"




Hi aarbee, yes I agree that comparison might be a bit extreme. They certainly have more integrity than the spruikers. However it is not totally without ulterior motive. They are brokers. Tastytrade show was initially closed to public viewing, only open ToS/Ameritrade clients(I think there was a subscription service too for non clients). They are broker first - educator seccond. Options selling generates lots of commissions. Throw in spreads and it doubles. Throw in their highly pushed "close at X% of profit", it doubles commissions again. I would bet all their % are calculated WITHOUT commissions.

They cannot escape the fact that they are a broker and by showing their platforms functions utilization in that style of trading is advertisement promoting their business. Also they have no results to show besides theoretical backtests. It is a long running show - they can easily manage a portfolio live week to week to demonstrate their methods. I personally doubt their personal trading ability. They got famous for broking, not managing funds. At the seccond or third Karen video where they got her back for follow up, she updated that she was up 11% for the year, it was in the last quarter. Tony exclaims that is an excellent return, given the market condition - and he wished he could do that. This suggest his personal return was closer to 0% than 11%. Tom was a market maker to broker, he never got famous as a trader. Market making is very different to retail speculation.



> Most option sellers failure  is not indicative of the failure of that strategy or the teaching thereof. Yes it has traps, yes one can blow out and that's why it is important to first gain knowledge and experience with baby steps. You will be well aware that most trend followers fail too. It is said of the traders in general or for that matter, business start-ups too. Trading is a hard gig. No one at tastytrade ever said it is easy unlike the others on your spruikers list.




I do reckon they mean well for their viewers overall, as profitable traders also means continual business. But by promoting options selling to mostly uneducated (at least in options) retail traders is risky. Options selling losses are EXPONENTIAL, not linear like other long/short futures/stocks etc. Coupled with difficulty of putting in a hard stop as far OTM/spreads don't have the best bid/ask - they also vanish in a true panic like we had in August. The recovery that day certainly was lucky for many people. Had it kept going down the battlefield would've been even more bloodied. 

I have a good relation with a head broker of a 30 years firm I do some automated trading with. I've chatted with him about options selling and he tells me in 30 years of broking he's never seen a retail options selling only account last over the long term at his firm. The ones who do employ options selling also change strategy according to market conditions or trade other systems. That is just one firm although I'm sure there are successful ones but that is a good representation of the statistics of retail accounts.






> Good on you for making those profits during "that week". If that performance you showed is typical of your long options strategies, consistent and not an outlier, I congratulate you whole-heartedly on your success. There isn't a reason for you to change a thing and in your place, I perhaps would have the same view as yours.
> 
> For most mere mortals, that sort of performance would be either an outlier or selective and perhaps, plodding along building "numbers of occurrences" to let probabilities work in your favour, over time might not be the worse thing to do.




Thank you but it is not something I do "consistenly" every week. I do both long and short options strategies - only during spikey volatility levels. I am mainly a day trader (FX & futures) when markets are calm most of the time until we get opportunities that happens usually every few months then I jump into options. I've only traded options this year maybe 2 or 3 times this year, before the start of September but I have been very busy in options every week since then. Imagine them teaching that - guys just trade 1-3 months of the year rest the year take the time off options, we'll try make our commissions elsewhere. I am not suggesting you can't make money with options in other conditions - you certainly can - just my personal opinion is risk:reward is better in other instruments.

hint: be alert at end of July to first week of Nov






A very saavy trader (no you won't find him teaching on youtube or seminars LMAO) shared this with me..Time + movements in COT (commitment of traders) + Dow Theory = VOL SPIKES/panic stop raids/engineered moves.


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## aarbee (25 September 2015)

Hi minwa,
Many thanks for taking the time to write your response. 
Very valuable indeed. 

Cheers


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## minwa (25 September 2015)




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## mazzatelli (28 September 2015)

wayneL said:


> Good to see ya Mazza, how goes it?




Hiya Wayne, it has been some time  Seems we have switched continents, I've been based in London for work past few years and you are back in the Southern hemisphere. Oh how I miss the weather  How have you been? and thanks for asking!



amiuser said:


> How about ...
> *Sell future + sell an OTM put and buy OTM call*......do you see any issue with Strategy ?




Basically you are long the risk reversal and hedging with short spot. The risk reversal you quoted can be thought of as a long position, but not exactly. It's a vol skew trade.

I'm assuming you don't understand the vol surface for equity markets (strip, skew and tenor) so I'd advise you best stay away from trying this trade.



hhse said:


> As I said, was not advice, just an opinion.
> Opinion is based on studies from Tom Sosnoffs research team. Closing early also reduces gamma risk.




minwa has touched on this, ToS is broker first. It's in their interest for clients to have high trading volume hence the encouragement to trade multi-leg instruments like condors and high turnover by closing early and opening new positions. While most of their material isn't scamming, it isn't new or revolutionary either. 



hhse said:


> Like I said you've either carelessly phrased things, or are very ill-informed of the product.
> 
> - I believe that is how options pricing model works? You put in a DTE and you can deduce POP based on that DTE? How is that misleading?
> .
> ...




If we keep it theoretical, then PoP calculated from pricing models is really only in a risk neutral world - i.e. the drift of the stock is the risk free rate. PoP in real world is a different matter. 

Whether they calculate using delta as a approximation or Monte Carlo simulation with underlying stochastic process per BSM, risk neutral is just a convenient change in measure of probability space to get nice martingales so that the option price can be expressed in analytical form instead of being solved numerically like many other complex math problems. So I'd take the PoP with a grain of salt.

Beta weighted deltas is spouted for retail who don't know how to model correlation and greeks like cross gamma/vega etc. No desk in any bank uses this because it is too reliant on correlations &/or optimizing. It can pass if trading a few indices with high correlation which is what ToS generally advocate(S&P, Russell, Nas).

Probably a good thing most skim past beta weighted bs lol


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## minwa (1 October 2015)

mazzatelli said:


> ToS is broker first. It's in their interest for clients to have high trading volume hence the encouragement to trade multi-leg instruments like condors and high turnover by closing early and opening new positions.




Just had a browse at their more recent videos..

"Forget waiting until 50% profit - 25% is the way to go ! (it also doubles our commissions..so guys please cut your profits short, dont let them run"










They also had another guest on few weeks ago who presented a long volatility trade.






I have a feeling the producers would not allow her to simply do a VIX call, instead have to push a 3 legged spread because it gives 3x the revenue. Capping your upside to 18% while establishing a long volatility trade in a cheap premium environment .


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## Felipe (6 January 2016)

Wow! Blowing my mind here. No wonder ive almost blown my account. Dunno if that's a good thing though as everyone seems to have done it before. 

Any of you guys from Perth? I am extremely interested in getting to learn more in the options world. 

I work away,  3 weeks at a time even roster.  But commit every waking moment at home...and work haha learning about options trading.  I am certainly drinking from the cool aid. I just can't grip a string of wins...

BUT, if you do the exact opposite i have done the last 7 months,  your gonna do great  

Have you guys seriously learnt to be so good all on your own? I done a course (I can feel the eyes rolling) it was with options21. A continued mentoring, hour a week. 

But i just can't get it right. Drop me a line guys, I'm looking for a solid network to learn from, my account is still. ...kinda healthy....21k.....down from 76k...I know. Idiot!

I started a thread "help im running out of options", have a flick through it. Finding this thread here feels like there are some good traders here. ...

Hope you find the time to help out. 

Regards

Felipe


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## minwa (3 June 2016)

aarbee said:


> Hmmm...with due respect minwa, mentioning tasty trade with your exalted list of spruikers is a drawing a long bow, is it not?? None of them trade or teach to trade like tastytrade. None of them are transparent like tastytrade. For starters tastytrade is not asking anyone for a penny for whatever they are doing for their viewers. Unless I get evidence to the contrary, I consider them to have that rare in trading world commodity "integrity"




http://www.valuewalk.com/2016/06/karen-bruton-super-trader/
https://www.thestreet.com/story/135...ing-strategy-relied-on-fraud-sec-alleges.html
http://www.tennessean.com/story/new...hemed-gain-millions-ill-gotten-fees/85211006/
https://www.sec.gov/litigation/complaints/2016/comp-pr2016-98.pdf

Turns out Karen (Tastytrade's heavily promoted guest) did not make any profit since 2014, just been rolling positions and reporting realized trades only - leaving out unrealized open losses (which must be very big with short options). Again, this calls to question the credibility of Tastytrade..they really should have done their research/verify Karen's performance before having her on and "teach". 

I suspect they knew about it..at least Tom did but still had her on anyway, because having a hero(ine) retail trader that retail traders can relate to just encourages their audience - their targeted customers for their brokerage firm - to sell options.


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## Sakti (4 June 2016)

From what I can gather from her interviews, Karen's strategy mainly consists of selling 2 SD naked puts and selling 1 SD naked calls and closer DTE at smaller ratio. It's no surprise that her strategy has been successful since 2009 as it's been a huge bull market, until it's faced with huge drawdowns. Assuming the same strategy, her portfolio would've got hammered August 2015 and Jan 2016, as she apparently does not beta weight her portfolio.
This is a good wakeup call for naked options sellers out there.

My question is, what would be the 'best defense' (assuming there is such a thing), for these situations.
As she doesn't carry enough deltas on the call side, would shorting futures help minimize the loss and in effect prevent the blowout? I just believe that managing a losing position is vital for naked out there, so it would be great to get some advise from experienced options traders in this forum.

Cheers!


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## hamli (4 June 2016)

Sakti said:


> From what I can gather from her interviews, Karen's strategy mainly consists of selling 2 SD naked puts and selling 1 SD naked calls and closer DTE at smaller ratio. It's no surprise that her strategy has been successful since 2009 as it's been a huge bull market, until it's faced with huge drawdowns. Assuming the same strategy, her portfolio would've got hammered August 2015 and Jan 2016, as she apparently does not beta weight her portfolio.
> This is a good wakeup call for naked options sellers out there.
> 
> My question is, what would be the 'best defense' (assuming there is such a thing), for these situations.
> ...




What has worked for me is trading different asset classes. When markets go down big, stocks become more correlated and tend to move down as well - so diversification across different companies/countries doesn't really protect you that well in these black swan evens. I invest across equities, cash market, metals, agriculture, currency.

Also keep your positions small when VIX is low. And scale in when VIX is high. Not much else you can do.

Currently, I'm investing time into learning more about other strategies (tech analysis to improve intra-day trading) and products. I think its important to be flexible with strategy/product to suit market conditions... each thrive under different conditions.


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## minwa (6 November 2016)

minwa said:


> hint: be alert at end of July to first week of Nov







Spikes at first week of Nov this year.


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## OmegaTrader (17 December 2016)

minwa said:


> View attachment 68719
> 
> 
> Spikes at first week of Nov this year.






What I am thinking  

*What do you think of a straddle *

Or

*Cash and call strategy *


*coming up soon???*













I know ETO spread is quite high for longer contracts+ brokerage+there is no volume except market makers on the long term contracts.

But you are on the exchange not OTC if that counts for anything.


Historical Volatility around 12-13% seems reasonable.

Now it is 11.3% quite low in historical terms.


Rates are low 1.5%, maybe a bit lower but already  down there

Dividends are dividends, On the one hand if downward price then dividend yield increases, but companies may suffer, so neither here nor there as in straddle this should counteract by call and put.

But if downward movement hopefully IV will spike....


Alternatively go for a yearly contract and cash and call.

Cash and call well you hope dividends to be lower than expected.

Fixed rate at about 2.8%  , call is around 5-6% of asset price.

 eg if xjo=5000,

 Yearly call may be equivalent of 250-300 points cost

=5-6% 


So for 2.2-3.2% you get pure price speculation with asymmetry.

Asymmetry helps you sleep with no extra losses, 

But there is no dividends or taxation advantages,

But retail cash rate is above risk free rate used in most option calculations, normally....

and you are buying at a relatively good implied probability.



*In the end I am hoping that either implied volatility spikes back up or actual volatility for the year is more than 10-11%*

Or

*That cash and call is superior, because retail cash rate is higher and calls are cheap because of low implied volatility *


I think time to pull the trigger at  around 10-11%. 

Toying with it  ....


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