# Options edge with tastytrade?



## brownbeagle (14 October 2014)

For context, I come from a DOM/tape watching perspective. I've been looking in to how options work recently and have been watching a lot of the tastytrade material. From what I can work out, the crux of their argument is that writing OTM options have a high probability of profit (POP).

I've watched quite a few videos, but I haven't yet heard the guys discuss the expected value with relation to high POP. In other words, my POP can be less than 50% but if my win value is large enough I can still be profitable. Likewise, I could win 90% of the time but my losses could be so large that I wipe out my profit. Is anyone able to clarify for me the expected value in relation to writing options the tastytrade way?


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## Sharkman (14 October 2014)

brownbeagle said:


> For context, I come from a DOM/tape watching perspective. I've been looking in to how options work recently and have been watching a lot of the tastytrade material. From what I can work out, the crux of their argument is that writing OTM options have a high probability of profit (POP).
> 
> I've watched quite a few videos, but I haven't yet heard the guys discuss the expected value with relation to high POP. In other words, my POP can be less than 50% but if my win value is large enough I can still be profitable. *Likewise, I could win 90% of the time but my losses could be so large that I wipe out my profit.* Is anyone able to clarify for me the expected value in relation to writing options the tastytrade way?




in my opinion this is precisely what will happen if you make a habit of selling low delta options. it's akin to making a whole succession of 1.10 bets on sports - you'll win most of your bets, but rank favourites are usually bad value and over the long run you will probably lose.

especially OTM calls, which will typically have a piddling low implied vol (relative to the other options in the same chain). yes if it's a covered call and it blows thru your strike and gets assigned, you have made a decent profit, but you can't say it was a good options strategy in that case. that profit has to be attributed to the original stock trade - the options trade has lost money!

at least with OTM puts you'll usually get a high implied vol (again relative to the other options in the same chain), so you could kinda make a case for those. but i'd still only do them when i feel there's enough of a support level there (eg. i have sold $10 strike QBE puts in the past when the stock gets to around the $10.50-$11 area - actually thought about selling them again today in fact, but then i remembered they have come out with some bad earnings announcements at around this time in previous years, so decided against it). i wouldn't just sell them willy nilly.


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