Options edge with tastytrade?

[brownbeagle]

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?

 

[Sharkman]

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.