Market Measures Podcast
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℗ & © 2011 tastytrade, Inc.
The tastytrade network teaches investors innovative, simple ways to trade stocks, options, and futures, take advantage of market volatility and build a successful portfolio. Tom Sosnoff leads an irreverent and playful band of floor traders who are show...
tastytrade, Inc.
It's not always easy to take the measure of a market, whether you've been trading for a day or a decade. On this segment we look under the hood—options probabilities, volatility, trading strategies, futures, you name it—so your trading mechanics are built to manage more winners.
It's not always easy to take the measure of a market, whether you've been trading for a day or a decade. On this segment we look under the hood—options probabilities, volatility, trading strategies, futures, you name it—so your trading mechanics are built to manage more winners.
tastytrade, Inc.
support@tastytrade.com

Market Measures  May 20, 2019  Scattered Correlations
When we think something is overbought, and a correlated asset is oversold, we may construct something called a pairs trade.
A pairs trade hopes to take advantage of price divergence in two correlated assets.
For a pairs trade, we would ideally l...
When we think something is overbought, and a correlated asset is oversold, we may construct something called a pairs trade.
A pairs trade hopes to take advantage of price divergence in two correlated assets.
For a pairs trade, we would ideally like to see a correlation between 0.6 and 0.8 between the two assets.
###Study:
* Scanned the market for all ETFs
* Correlation to SPY between 0.6 and 0.8
* Goal: Create opportunities sell call in overbought asset (SPY) and sell put in oversold asset
We find that the asset that fits both the correlation and the oversold criteria is XME. With a correlation of 0.6 and its 1% yeartodate performance compared to the SPY 14% performance, we can sell calls in SPY and puts in XME to benefit not only from theta decay like a normal strangle, but also price convergence.
When we adjust the notional value (beta weighted deltas) of XME to SPY, we find that we need to sell 8 puts in XME to every 1 call in SPY.
http://feeds.tastytrade.com/media/91514/TTL_MM_190520_POD.m4a
Mon, 20 May 2019 09:28:00 0500
607.392

Market Measures  May 20, 2019  Scattered Correlations
When we think something is overbought, and a correlated asset is oversold, we may construct something called a pairs trade.
A pairs trade hopes to take advantage of price divergence in two correlated assets.
For a pairs trade, we would ideally l...
When we think something is overbought, and a correlated asset is oversold, we may construct something called a pairs trade.
A pairs trade hopes to take advantage of price divergence in two correlated assets.
For a pairs trade, we would ideally like to see a correlation between 0.6 and 0.8 between the two assets.
###Study:
* Scanned the market for all ETFs
* Correlation to SPY between 0.6 and 0.8
* Goal: Create opportunities sell call in overbought asset (SPY) and sell put in oversold asset
We find that the asset that fits both the correlation and the oversold criteria is XME. With a correlation of 0.6 and its 1% yeartodate performance compared to the SPY 14% performance, we can sell calls in SPY and puts in XME to benefit not only from theta decay like a normal strangle, but also price convergence.
When we adjust the notional value (beta weighted deltas) of XME to SPY, we find that we need to sell 8 puts in XME to every 1 call in SPY.
http://feeds.tastytrade.com/media/91513/TTL_MM_190520_SEG_EDIT.mp4
Mon, 20 May 2019 09:28:00 0500
395.762

Market Measures  May 17, 2019  Theta and IV
As tastytraders, we like to sell premium 45 days to expiration and manage our trades 21 days to expiration. The reason is to maximize our theta while minimizing risk.
Let's explore the unique relationship between theta and implied volatility to see ...
As tastytraders, we like to sell premium 45 days to expiration and manage our trades 21 days to expiration. The reason is to maximize our theta while minimizing risk.
Let's explore the unique relationship between theta and implied volatility to see if we can maximize theta using IV.
When looking at theta values of 16 delta strangles over time, there is no real relationship with IV, however, in order to look at theta correctly, we have to normalize by either capital used or the stock price.
When we do that, we see a clear correlation between theta and IV. As IV increases, so does your theta as percent of capital used.
This implies that to maximize theta in our portfolio, sell in periods of high implied volatility.
http://feeds.tastytrade.com/media/91467/TTL_MM_190517_POD.m4a
Fri, 17 May 2019 09:36:00 0500
505.752

Market Measures  May 17, 2019  Theta and IV
As tastytraders, we like to sell premium 45 days to expiration and manage our trades 21 days to expiration. The reason is to maximize our theta while minimizing risk.
Let's explore the unique relationship between theta and implied volatility to see ...
As tastytraders, we like to sell premium 45 days to expiration and manage our trades 21 days to expiration. The reason is to maximize our theta while minimizing risk.
Let's explore the unique relationship between theta and implied volatility to see if we can maximize theta using IV.
When looking at theta values of 16 delta strangles over time, there is no real relationship with IV, however, in order to look at theta correctly, we have to normalize by either capital used or the stock price.
When we do that, we see a clear correlation between theta and IV. As IV increases, so does your theta as percent of capital used.
This implies that to maximize theta in our portfolio, sell in periods of high implied volatility.
http://feeds.tastytrade.com/media/91466/TTL_MM_190517_SEG_EDIT.mp4
Fri, 17 May 2019 09:36:00 0500
294.127

tastytrade LIVE  May 16, 2019  Selloff Performance
In periods of selloffs, who would fare better: premium sellers or buy and hold investors? Let's walk through a study and find out!
###Study:
* SPY
* 2008, 2015, 2018
* Sold one 16∆ strangle continuously
* Managed at 21 DTE
* Bought and hel...
In periods of selloffs, who would fare better: premium sellers or buy and hold investors? Let's walk through a study and find out!
###Study:
* SPY
* 2008, 2015, 2018
* Sold one 16∆ strangle continuously
* Managed at 21 DTE
* Bought and held 100 shares of SPY
* We assumed a dividend of $1.25 per share per quarter (2 cents per share per day)
* Compared average daily P/L
We find that not only do the strangles outperform in periods of selloffs when compared to long stock, but the capital requirement is lower for strangles by about 60%. By staying small and applying proper mechanics, we can produce less volatile returns in market selloffs.
http://feeds.tastytrade.com/media/91419/TTL_MM_190516_SEG_EDIT.mp4
Thu, 16 May 2019 09:17:00 0500
506.272

tastytrade LIVE  May 16, 2019  Selloff Performance
In periods of selloffs, who would fare better: premium sellers or buy and hold investors? Let's walk through a study and find out!
###Study:
* SPY
* 2008, 2015, 2018
* Sold one 16∆ strangle continuously
* Managed at 21 DTE
* Bought and hel...
In periods of selloffs, who would fare better: premium sellers or buy and hold investors? Let's walk through a study and find out!
###Study:
* SPY
* 2008, 2015, 2018
* Sold one 16∆ strangle continuously
* Managed at 21 DTE
* Bought and held 100 shares of SPY
* We assumed a dividend of $1.25 per share per quarter (2 cents per share per day)
* Compared average daily P/L
We find that not only do the strangles outperform in periods of selloffs when compared to long stock, but the capital requirement is lower for strangles by about 60%. By staying small and applying proper mechanics, we can produce less volatile returns in market selloffs.
http://feeds.tastytrade.com/media/91420/TTL_MM_190516_POD.m4a
Thu, 16 May 2019 09:17:00 0500
717.936

Market Measures  May 15, 2019  Selling VIX Calls and Call Spreads
Just like the VIX measures the implied volatility of SPX, VVIX measures the implied volatility of VIX. Can we use this to create a VIX implied volatility rank and use it to structure short premium trades?
### The Study:
* VIX
* 2005 – Present
* S...
Just like the VIX measures the implied volatility of SPX, VVIX measures the implied volatility of VIX. Can we use this to create a VIX implied volatility rank and use it to structure short premium trades?
### The Study:
* VIX
* 2005 – Present
* Sold 45 Days to Expiration
* 50 Delta Calls
* 50 Delta / 10 Delta Call Credit Spreads
* Compared Performance in Various IV Ranks
### Results:
Because of the pricing of VIX, selling calls and call spreads has been a profitable strategy historically. Waiting for increases in implied volatility rank improves the performance. However, defined risk strategies tend to outperform naked calls because of their defined risk structure. Naked calls can assume large losses when VIX spikes while credit spreads limit losses and maintain nearly identical win ratios and average P&L.
http://feeds.tastytrade.com/media/91377/TTL_MM_190515_POD.m4a
Wed, 15 May 2019 09:32:00 0500
697.032

Market Measures  May 15, 2019  Selling VIX Calls and Call Spreads
Just like the VIX measures the implied volatility of SPX, VVIX measures the implied volatility of VIX. Can we use this to create a VIX implied volatility rank and use it to structure short premium trades?
### The Study:
* VIX
* 2005 – Present
* S...
Just like the VIX measures the implied volatility of SPX, VVIX measures the implied volatility of VIX. Can we use this to create a VIX implied volatility rank and use it to structure short premium trades?
### The Study:
* VIX
* 2005 – Present
* Sold 45 Days to Expiration
* 50 Delta Calls
* 50 Delta / 10 Delta Call Credit Spreads
* Compared Performance in Various IV Ranks
### Results:
Because of the pricing of VIX, selling calls and call spreads has been a profitable strategy historically. Waiting for increases in implied volatility rank improves the performance. However, defined risk strategies tend to outperform naked calls because of their defined risk structure. Naked calls can assume large losses when VIX spikes while credit spreads limit losses and maintain nearly identical win ratios and average P&L.
http://feeds.tastytrade.com/media/91376/TTL_MM_190515_SEG_EDIT.mp4
Wed, 15 May 2019 09:32:00 0500
485.385

Market Measures  May 14, 2019  Average Strategy Performance
The price of the underlying stock is one of the largest contributors to an option’s price. Since different underlyings have different price levels we cannot compare average performance of the same strategy across underlyings. One way to normalize for d...
The price of the underlying stock is one of the largest contributors to an option’s price. Since different underlyings have different price levels we cannot compare average performance of the same strategy across underlyings. One way to normalize for differences in the underlying price and compare strategy performance is to divide the P&L by the trade credit. In this piece, Liz, Tony and Beef compare the performance of strategies across products to create an estimate for trade profitability.
### The Study:
* SPY IWM TLT EEM
* 2005 – Present
* 45 Days to Expiration, Managed at 21 DTE
* Sold:
* ATM Puts
* Straddles
* 16 Delta Strangles
* Divided Each P&L by the Initial Credit
### Results:
The average P&L as a percent of the trade credit is fairly constant across four different products and taking the average of each a trader can estimate their profits from certain strategies. The average profit as a percent of the trade credit is 15%, 8% and 21% for ATM puts, straddles, and 16 delta strangles.
http://feeds.tastytrade.com/media/91331/TTL_MM_190514_POD.m4a
Tue, 14 May 2019 09:18:00 0500
914.256

Market Measures  May 14, 2019  Average Strategy Performance
The price of the underlying stock is one of the largest contributors to an option’s price. Since different underlyings have different price levels we cannot compare average performance of the same strategy across underlyings. One way to normalize for d...
The price of the underlying stock is one of the largest contributors to an option’s price. Since different underlyings have different price levels we cannot compare average performance of the same strategy across underlyings. One way to normalize for differences in the underlying price and compare strategy performance is to divide the P&L by the trade credit. In this piece, Liz, Tony and Beef compare the performance of strategies across products to create an estimate for trade profitability.
### The Study:
* SPY IWM TLT EEM
* 2005 – Present
* 45 Days to Expiration, Managed at 21 DTE
* Sold:
* ATM Puts
* Straddles
* 16 Delta Strangles
* Divided Each P&L by the Initial Credit
### Results:
The average P&L as a percent of the trade credit is fairly constant across four different products and taking the average of each a trader can estimate their profits from certain strategies. The average profit as a percent of the trade credit is 15%, 8% and 21% for ATM puts, straddles, and 16 delta strangles.
http://feeds.tastytrade.com/media/91330/TTL_MM_190514_SEG_EDIT.mp4
Tue, 14 May 2019 09:18:00 0500
702.635

tastytrade LIVE  May 13, 2019  All About Skew
The CBOE Skew Index gives an indication of the probability of outlier moves in the SPX. Since it’s an index we cannot trade it directly, but does it provide any use in predicting SPX or VIX changes?
### The Study:
* 1990 to Present
* Analyzed dail...
The CBOE Skew Index gives an indication of the probability of outlier moves in the SPX. Since it’s an index we cannot trade it directly, but does it provide any use in predicting SPX or VIX changes?
### The Study:
* 1990 to Present
* Analyzed daily SKEW
* Bucketed SKEW values into quartiles
* Analyzed moves in SPX and VIX
* 1 Week Prior
* 1 Week After
* 2 Weeks After
* 1 Month After
### Results:
There does not appear to be a clear relationship between the level of SKEW and movements in either SPX or the VIX. Instead, the relationship appears mostly random. Rather than use SKEW to determine trade entry signal, we can use other metrics like VIX and Implied Volatility Rank.
http://feeds.tastytrade.com/media/91287/TTL_MM_190513_SEG_EDIT.mp4
Mon, 13 May 2019 09:29:00 0500
899.699

tastytrade LIVE  May 13, 2019  All About Skew
The CBOE Skew Index gives an indication of the probability of outlier moves in the SPX. Since it’s an index we cannot trade it directly, but does it provide any use in predicting SPX or VIX changes?
### The Study:
* 1990 to Present
* Analyzed dail...
The CBOE Skew Index gives an indication of the probability of outlier moves in the SPX. Since it’s an index we cannot trade it directly, but does it provide any use in predicting SPX or VIX changes?
### The Study:
* 1990 to Present
* Analyzed daily SKEW
* Bucketed SKEW values into quartiles
* Analyzed moves in SPX and VIX
* 1 Week Prior
* 1 Week After
* 2 Weeks After
* 1 Month After
### Results:
There does not appear to be a clear relationship between the level of SKEW and movements in either SPX or the VIX. Instead, the relationship appears mostly random. Rather than use SKEW to determine trade entry signal, we can use other metrics like VIX and Implied Volatility Rank.
http://feeds.tastytrade.com/media/91288/TTL_MM_190513_POD.m4a
Mon, 13 May 2019 09:29:00 0500
1111.32

tastytrade LIVE  May 10, 2019  Mixing up DTE and IVR
In the BlackScholes model, the variables time and volatility go hand in hand. This means that theoretically, if volatility is low, we can extend duration to make up for the lack in premium, and if vol is high, we can reduce duration. Today's market m...
In the BlackScholes model, the variables time and volatility go hand in hand. This means that theoretically, if volatility is low, we can extend duration to make up for the lack in premium, and if vol is high, we can reduce duration. Today's market measure looks into why this is.
In the BlackScholes pricing model, volatility and time variables are always together. So mathematically, time and volatility can help offset each other when either one is too low.
So we know that premium can be adjusted with time when vol is high or low, but what about our bottom line?
Can we adjust our duration based on IVR to keep our bottom line consistent?
To test this we developed a study that first looked at 45 dte options and how they varied based on IV Rank in high and low environments. Next we examined how varying DTE in different IVR environments changed the outcome. Check out the segment to see the results!
http://feeds.tastytrade.com/media/91239/TTL_MM_190510_POD.m4a
Fri, 10 May 2019 09:30:00 0500
544.032
Implied Volatility,Measuring Implied Volatility,High IV, Low IV

tastytrade LIVE  May 10, 2019  Mixing up DTE and IVR
In the BlackScholes model, the variables time and volatility go hand in hand. This means that theoretically, if volatility is low, we can extend duration to make up for the lack in premium, and if vol is high, we can reduce duration. Today's market m...
In the BlackScholes model, the variables time and volatility go hand in hand. This means that theoretically, if volatility is low, we can extend duration to make up for the lack in premium, and if vol is high, we can reduce duration. Today's market measure looks into why this is.
In the BlackScholes pricing model, volatility and time variables are always together. So mathematically, time and volatility can help offset each other when either one is too low.
So we know that premium can be adjusted with time when vol is high or low, but what about our bottom line?
Can we adjust our duration based on IVR to keep our bottom line consistent?
To test this we developed a study that first looked at 45 dte options and how they varied based on IV Rank in high and low environments. Next we examined how varying DTE in different IVR environments changed the outcome. Check out the segment to see the results!
http://feeds.tastytrade.com/media/91238/TTL_MM_190510_SEG_EDIT.mp4
Fri, 10 May 2019 09:30:00 0500
332.399
Implied Volatility,Measuring Implied Volatility,High IV, Low IV

Market Measures  May 9, 2019  Ways of Managing Trades
When implied volatility rank is high, we tend to see greater profits across the board. However, we have different management strategies that can vary our performance. In periods of high IV Rank, what management strategy works best?
###Study
* SPY...
When implied volatility rank is high, we tend to see greater profits across the board. However, we have different management strategies that can vary our performance. In periods of high IV Rank, what management strategy works best?
###Study
* SPY, 2005present, 45 DTE
* Sold 16 delta strangles when IVR > 50 and all environments
* Compared managing at expiration, 50% of max profit and 21 days.
* Recorded Daily P/L and volatility of ending P/L
We find that managing at 21 days to expiration yields the highest P/L per day while having the lowest risk profile in all environments and when implied volatility is high.
http://feeds.tastytrade.com/media/91193/TTL_MM_190509_POD.m4a
Thu, 09 May 2019 09:25:00 0500
485.352

Market Measures  May 9, 2019  Ways of Managing Trades
When implied volatility rank is high, we tend to see greater profits across the board. However, we have different management strategies that can vary our performance. In periods of high IV Rank, what management strategy works best?
###Study
* SPY...
When implied volatility rank is high, we tend to see greater profits across the board. However, we have different management strategies that can vary our performance. In periods of high IV Rank, what management strategy works best?
###Study
* SPY, 2005present, 45 DTE
* Sold 16 delta strangles when IVR > 50 and all environments
* Compared managing at expiration, 50% of max profit and 21 days.
* Recorded Daily P/L and volatility of ending P/L
We find that managing at 21 days to expiration yields the highest P/L per day while having the lowest risk profile in all environments and when implied volatility is high.
http://feeds.tastytrade.com/media/91192/TTL_MM_190509_SEG_EDIT.mp4
Thu, 09 May 2019 09:25:00 0500
273.74

Market Measures  May 8, 2019  Average Moves Pt 2
Last week we discussed the average moves in SPY and the respective average breakevens on a SPY strangle over the past 14 years.
Today, we are going to see how those breakevens and average moves change when in different IV Rank environments.
###St...
Last week we discussed the average moves in SPY and the respective average breakevens on a SPY strangle over the past 14 years.
Today, we are going to see how those breakevens and average moves change when in different IV Rank environments.
###Study
* Sold 1 SD Strangles in SPY
* 45 DTE, Since 2005
* Held until expiration
* IVR Buckets: 050, 50100
* Compared:
* Average upside and downside breakeven range as % of underlying price
* Average actual up and down move as % of underlying price
We find that when IVR is high, we have larger breakevens than when IVR is low, but also, average price moves do not expand by much. This makes the case that in periods of high IVR, your trade is more predicable, contrary to popular belief.
http://feeds.tastytrade.com/media/91148/TTL_MM_190508_POD.m4a
Wed, 08 May 2019 09:35:00 0500
814.032

Market Measures  May 8, 2019  Average Moves Pt 2
Last week we discussed the average moves in SPY and the respective average breakevens on a SPY strangle over the past 14 years.
Today, we are going to see how those breakevens and average moves change when in different IV Rank environments.
###St...
Last week we discussed the average moves in SPY and the respective average breakevens on a SPY strangle over the past 14 years.
Today, we are going to see how those breakevens and average moves change when in different IV Rank environments.
###Study
* Sold 1 SD Strangles in SPY
* 45 DTE, Since 2005
* Held until expiration
* IVR Buckets: 050, 50100
* Compared:
* Average upside and downside breakeven range as % of underlying price
* Average actual up and down move as % of underlying price
We find that when IVR is high, we have larger breakevens than when IVR is low, but also, average price moves do not expand by much. This makes the case that in periods of high IVR, your trade is more predicable, contrary to popular belief.
http://feeds.tastytrade.com/media/91147/TTL_MM_190508_SEG_EDIT.mp4
Wed, 08 May 2019 09:35:00 0500
602.402

Market Measures  May 7, 2019  Selling Puts into Strength
With an increase in two sided market activity, the Research Team looks into the historical performance of short puts into market selloffs.
### The Study:
* SPY
* 2005 – Present
* 30 Delta Puts
* 45 DTE
* Held to Expiration and Managed at...
With an increase in two sided market activity, the Research Team looks into the historical performance of short puts into market selloffs.
### The Study:
* SPY
* 2005 – Present
* 30 Delta Puts
* 45 DTE
* Held to Expiration and Managed at 21 DTE
* Compared Selling Puts after Varying Percent SellOffs in SPY:
* 0.5%, 1% and 1.5%
### Results:
2% down moves in the SPY are fairly uncommon as more than 90% of down moves are smaller than 2%. Although selling puts into down moves can be an intimidating strategy, waiting to do so results in increased profitability when trades are both held to expiration and managed early.
http://feeds.tastytrade.com/media/91094/TTL_MM_190507_POD.m4a
Tue, 07 May 2019 09:23:00 0500
686.112

Market Measures  May 7, 2019  Selling Puts into Strength
With an increase in two sided market activity, the Research Team looks into the historical performance of short puts into market selloffs.
### The Study:
* SPY
* 2005 – Present
* 30 Delta Puts
* 45 DTE
* Held to Expiration and Managed at...
With an increase in two sided market activity, the Research Team looks into the historical performance of short puts into market selloffs.
### The Study:
* SPY
* 2005 – Present
* 30 Delta Puts
* 45 DTE
* Held to Expiration and Managed at 21 DTE
* Compared Selling Puts after Varying Percent SellOffs in SPY:
* 0.5%, 1% and 1.5%
### Results:
2% down moves in the SPY are fairly uncommon as more than 90% of down moves are smaller than 2%. Although selling puts into down moves can be an intimidating strategy, waiting to do so results in increased profitability when trades are both held to expiration and managed early.
http://feeds.tastytrade.com/media/91093/TTL_MM_190507_SEG_EDIT.mp4
Tue, 07 May 2019 09:23:00 0500
474.474

Market Measures  May 6, 2019  Outliers vs. IV
We discuss many benefits of selling premium when implied volatility is high.
Today, we are going to visualize the relationship between implied volatility & P/L using a scatter plot.
What do we learn by looking at this plot?
###Study:
* ...
We discuss many benefits of selling premium when implied volatility is high.
Today, we are going to visualize the relationship between implied volatility & P/L using a scatter plot.
What do we learn by looking at this plot?
###Study:
* SPY
* Sold 1 SD Strangles
* 45 DTE
* Since 2005
* Managed at 21 DTE
* Created scatter plot between VIX levels at beginning of a trade and P/L at 21 DTE of the trade
75% of outliers (losses greater than $500) occurred when VIX was under 20. This suggests that contrary to popular belief, large losses occur when IV is low! High IV actually reduces risk of outliers.
This is tastytrade’s reasoning for trading small and trading often. When you have low IV, staying small reduces your exposure for an outlier move.
http://feeds.tastytrade.com/media/91046/TTL_MM_190506_POD.m4a
Mon, 06 May 2019 09:23:00 0500
573.576

Market Measures  May 6, 2019  Outliers vs. IV
We discuss many benefits of selling premium when implied volatility is high.
Today, we are going to visualize the relationship between implied volatility & P/L using a scatter plot.
What do we learn by looking at this plot?
###Study:
* ...
We discuss many benefits of selling premium when implied volatility is high.
Today, we are going to visualize the relationship between implied volatility & P/L using a scatter plot.
What do we learn by looking at this plot?
###Study:
* SPY
* Sold 1 SD Strangles
* 45 DTE
* Since 2005
* Managed at 21 DTE
* Created scatter plot between VIX levels at beginning of a trade and P/L at 21 DTE of the trade
75% of outliers (losses greater than $500) occurred when VIX was under 20. This suggests that contrary to popular belief, large losses occur when IV is low! High IV actually reduces risk of outliers.
This is tastytrade’s reasoning for trading small and trading often. When you have low IV, staying small reduces your exposure for an outlier move.
http://feeds.tastytrade.com/media/91045/TTL_MM_190506_SEG_EDIT.mp4
Mon, 06 May 2019 09:23:00 0500
361.928

tastytrade LIVE  May 3, 2019  Cross Product Covered Calls
A covered call is comprised of long 100 shares of stock and a short out of the money call option. If traders don’t want to forfeit their upside potential, can they construct a covered call by selling calls on a highly correlated index?
### The Stud...
A covered call is comprised of long 100 shares of stock and a short out of the money call option. If traders don’t want to forfeit their upside potential, can they construct a covered call by selling calls on a highly correlated index?
### The Study:
* Portfolio of 100 Shares Five Underlyings:
* AAPL, IBM, XOM, JNJ, GS
* Compared Two Variants of Covered Calls
* Short 30 Delta Calls on Each Individual Stock
* Short 3 30 Delta Calls on SPY
* April 2018 to Present
* 45 DTE Held to Expiration
### Results:
Compared to just the portfolio of long stock, the covered call portfolio has very similar performance with 10% less volatility. Almost identical results are obtained when the covered call is initiated on SPY! Using a highly correlated index, traders can consider selling calls on the index to simulate a covered call without forfeiting their upside potential.
http://feeds.tastytrade.com/media/90999/TTL_MM_190503_POD.m4a
Fri, 03 May 2019 09:33:00 0500
834.936

tastytrade LIVE  May 3, 2019  Cross Product Covered Calls
A covered call is comprised of long 100 shares of stock and a short out of the money call option. If traders don’t want to forfeit their upside potential, can they construct a covered call by selling calls on a highly correlated index?
### The Stud...
A covered call is comprised of long 100 shares of stock and a short out of the money call option. If traders don’t want to forfeit their upside potential, can they construct a covered call by selling calls on a highly correlated index?
### The Study:
* Portfolio of 100 Shares Five Underlyings:
* AAPL, IBM, XOM, JNJ, GS
* Compared Two Variants of Covered Calls
* Short 30 Delta Calls on Each Individual Stock
* Short 3 30 Delta Calls on SPY
* April 2018 to Present
* 45 DTE Held to Expiration
### Results:
Compared to just the portfolio of long stock, the covered call portfolio has very similar performance with 10% less volatility. Almost identical results are obtained when the covered call is initiated on SPY! Using a highly correlated index, traders can consider selling calls on the index to simulate a covered call without forfeiting their upside potential.
http://feeds.tastytrade.com/media/90998/TTL_MM_190503_SEG_EDIT.mp4
Fri, 03 May 2019 09:33:00 0500
623.323

Market Measures  May 2, 2019  Average Moves
Some of the many ways that tastytrade has found the effectiveness of selling premium is through studies involving:
* Implied volatility overstating realized volatility
* Average P/L being positive over the last 14 years
* Probability of profit bei...
Some of the many ways that tastytrade has found the effectiveness of selling premium is through studies involving:
* Implied volatility overstating realized volatility
* Average P/L being positive over the last 14 years
* Probability of profit being above 50%
Today we are going to discuss another reason of the effectiveness of premium selling: average movements vs average breakevens.
###Study
* Sold 1 SD Strangles in SPY
* 45 DTE, Since 2005
* Held until expiration
* Compared:
* Average upside and downside breakeven range as % of underlying price
* Average actual up and down move as % of underlying price
We find that average moves in the stock price understate average breakevens by multiple percentage points, meaning that on average, our strangles will most likely expire worthless over the past 14 years. However, this is not to say that there is inefficiency in the market, rather that strangle sellers have been right more times than wrong.
http://feeds.tastytrade.com/media/90946/TTL_MM_190502_POD.m4a
Thu, 02 May 2019 09:32:00 0500
699.648

Market Measures  May 2, 2019  Average Moves
Some of the many ways that tastytrade has found the effectiveness of selling premium is through studies involving:
* Implied volatility overstating realized volatility
* Average P/L being positive over the last 14 years
* Probability of profit bei...
Some of the many ways that tastytrade has found the effectiveness of selling premium is through studies involving:
* Implied volatility overstating realized volatility
* Average P/L being positive over the last 14 years
* Probability of profit being above 50%
Today we are going to discuss another reason of the effectiveness of premium selling: average movements vs average breakevens.
###Study
* Sold 1 SD Strangles in SPY
* 45 DTE, Since 2005
* Held until expiration
* Compared:
* Average upside and downside breakeven range as % of underlying price
* Average actual up and down move as % of underlying price
We find that average moves in the stock price understate average breakevens by multiple percentage points, meaning that on average, our strangles will most likely expire worthless over the past 14 years. However, this is not to say that there is inefficiency in the market, rather that strangle sellers have been right more times than wrong.
http://feeds.tastytrade.com/media/90945/TTL_MM_190502_SEG_EDIT.mp4
Thu, 02 May 2019 09:32:00 0500
488.021

tastytrade LIVE  May 1, 2019  Effect of Volatility on P/L
Nothing is free. This applies to everything in trading including selling premium in High IV environments. What is the cost to selling premium in various IV environments?
###Study:
* Sold 1 Standard Deviation Strangles in SPY, 45 DTE, Since 2005
...
Nothing is free. This applies to everything in trading including selling premium in High IV environments. What is the cost to selling premium in various IV environments?
###Study:
* Sold 1 Standard Deviation Strangles in SPY, 45 DTE, Since 2005
* Managed at 21 DTE
* Segregated by IVR levels
* Recorded average P/L, success rate, volatility of P/L
Ultimately, the Research Team found that as we sell in higher IVR, we earn higher P/L, however, we also experience greater swings in our portfolio. However, the increase in P/L in higher IVR environments is much greater than the relative increase in portfolio volatility.
http://feeds.tastytrade.com/media/90898/TTL_MM_190501_SEG_EDIT.mp4
Wed, 01 May 2019 09:20:00 0500
375.675

tastytrade LIVE  May 1, 2019  Effect of Volatility on P/L
Nothing is free. This applies to everything in trading including selling premium in High IV environments. What is the cost to selling premium in various IV environments?
###Study:
* Sold 1 Standard Deviation Strangles in SPY, 45 DTE, Since 2005
...
Nothing is free. This applies to everything in trading including selling premium in High IV environments. What is the cost to selling premium in various IV environments?
###Study:
* Sold 1 Standard Deviation Strangles in SPY, 45 DTE, Since 2005
* Managed at 21 DTE
* Segregated by IVR levels
* Recorded average P/L, success rate, volatility of P/L
Ultimately, the Research Team found that as we sell in higher IVR, we earn higher P/L, however, we also experience greater swings in our portfolio. However, the increase in P/L in higher IVR environments is much greater than the relative increase in portfolio volatility.
http://feeds.tastytrade.com/media/90899/TTL_MM_190501_POD.m4a
Wed, 01 May 2019 09:20:00 0500
587.304

tastytrade LIVE  April 30, 2019  ROC and Volatility
Return on capital is a performance metric that captures the potential profits of a trade relative to the amount of capital used. Narrow iron condors, with their low buying power requirements typically exhibit very high potential return on capital. Howe...
Return on capital is a performance metric that captures the potential profits of a trade relative to the amount of capital used. Narrow iron condors, with their low buying power requirements typically exhibit very high potential return on capital. However, because of their variability in returns, there is a significant difference in expected versus realized return on capital. In this piece, the Research Team explores two ways to reduce this variability in return on capital.
### The Study:
* SPY
* 2005 – 2018
* 45 Days to Expiration
* Held to Expiration
* Short 20 Delta $1 Wide Iron Condor
### Results:
Two ways to reduce the volatility of iron condors are to widen the wings of the strategy and proactively manage the position. Widening the wings of the iron condor from $1 Wide to $5 wide reduced the annualized return on capital volatility from 613% to 370%. Additionally, managing the trades at 21 days to expiration further reduced the annualized return on capital volatility.
http://feeds.tastytrade.com/media/90849/TTL_MM_190430_SEG_EDIT.mp4
Tue, 30 Apr 2019 09:28:00 0500
538.772

tastytrade LIVE  April 30, 2019  ROC and Volatility
Return on capital is a performance metric that captures the potential profits of a trade relative to the amount of capital used. Narrow iron condors, with their low buying power requirements typically exhibit very high potential return on capital. Howe...
Return on capital is a performance metric that captures the potential profits of a trade relative to the amount of capital used. Narrow iron condors, with their low buying power requirements typically exhibit very high potential return on capital. However, because of their variability in returns, there is a significant difference in expected versus realized return on capital. In this piece, the Research Team explores two ways to reduce this variability in return on capital.
### The Study:
* SPY
* 2005 – 2018
* 45 Days to Expiration
* Held to Expiration
* Short 20 Delta $1 Wide Iron Condor
### Results:
Two ways to reduce the volatility of iron condors are to widen the wings of the strategy and proactively manage the position. Widening the wings of the iron condor from $1 Wide to $5 wide reduced the annualized return on capital volatility from 613% to 370%. Additionally, managing the trades at 21 days to expiration further reduced the annualized return on capital volatility.
http://feeds.tastytrade.com/media/90850/TTL_MM_190430_POD.m4a
Tue, 30 Apr 2019 09:28:00 0500
750.384

tastytrade LIVE  April 29, 2019  Measuring Implied Volatility in Crude Oil
Implied volatility in crude oil is skewed to the upside, meaning that most occurrences cluster on the lower end with a few occurrences dramatically higher.
Because of this, is there an ideal level of IV where it makes sense to sell premium at?
##...
Implied volatility in crude oil is skewed to the upside, meaning that most occurrences cluster on the lower end with a few occurrences dramatically higher.
Because of this, is there an ideal level of IV where it makes sense to sell premium at?
###Study
* Sold 1 standard deviation (16 delta) strangles in Crude Oil futures using theoretical backtest
* Crude Oil (/CL)
* 30 DTE options; Managed at Expiration
* 2010 to Present
The median IV level is 30%, so we used that as our threshold to sell premium.
By selling premium in IV levels above 30%, we find 50% greater profits and slightly higher win rate than selling premium in all environments.
From now on, we might look for an IV over 30% as a better gauge of opportunity in crude options.
http://feeds.tastytrade.com/media/90800/TTL_MM_190429_SEG_EDIT.mp4
Mon, 29 Apr 2019 09:32:00 0500
662.429

tastytrade LIVE  April 29, 2019  Measuring Implied Volatility in Crude Oil
Implied volatility in crude oil is skewed to the upside, meaning that most occurrences cluster on the lower end with a few occurrences dramatically higher.
Because of this, is there an ideal level of IV where it makes sense to sell premium at?
##...
Implied volatility in crude oil is skewed to the upside, meaning that most occurrences cluster on the lower end with a few occurrences dramatically higher.
Because of this, is there an ideal level of IV where it makes sense to sell premium at?
###Study
* Sold 1 standard deviation (16 delta) strangles in Crude Oil futures using theoretical backtest
* Crude Oil (/CL)
* 30 DTE options; Managed at Expiration
* 2010 to Present
The median IV level is 30%, so we used that as our threshold to sell premium.
By selling premium in IV levels above 30%, we find 50% greater profits and slightly higher win rate than selling premium in all environments.
From now on, we might look for an IV over 30% as a better gauge of opportunity in crude options.
http://feeds.tastytrade.com/media/90801/TTL_MM_190429_POD.m4a
Mon, 29 Apr 2019 09:32:00 0500
874.056

Market Measures  April 26, 2019  Delta Hedging in Various Markets
Using the beta weighted delta of a portfolio one can determine how many shares of an index to buy or sell for hedging. In this piece, the Research team explores the value of a hedge to a portfolio in various market conditions including neutral periods,...
Using the beta weighted delta of a portfolio one can determine how many shares of an index to buy or sell for hedging. In this piece, the Research team explores the value of a hedge to a portfolio in various market conditions including neutral periods, bullish periods, and bearish periods.
### The Study:
* Sold 50 Delta Puts
* AAPL, IBM, XOM, JNJ and GS
* 45 Days to Expiration
* Held to Expiration
* Compared Cumulative NonHedged and Beta Weighted Delta Hedged Performance During Three Market Environments
### Results:
Across three market conditions where the SPY was neutral, bearish, and bullish having short SPY shares to hedge a portfolio of short puts reduced the portfolio volatility. Additionally, when this hedge was maintained throughout the year the hedged and nonhedged portfolios had the same ending P&L while the hedged portfolio had nearly a third less daily P&L volatility.
http://feeds.tastytrade.com/media/90756/TTL_MM_190426_POD.m4a
Fri, 26 Apr 2019 09:53:00 0500
762.744

Market Measures  April 26, 2019  Delta Hedging in Various Markets
Using the beta weighted delta of a portfolio one can determine how many shares of an index to buy or sell for hedging. In this piece, the Research team explores the value of a hedge to a portfolio in various market conditions including neutral periods,...
Using the beta weighted delta of a portfolio one can determine how many shares of an index to buy or sell for hedging. In this piece, the Research team explores the value of a hedge to a portfolio in various market conditions including neutral periods, bullish periods, and bearish periods.
### The Study:
* Sold 50 Delta Puts
* AAPL, IBM, XOM, JNJ and GS
* 45 Days to Expiration
* Held to Expiration
* Compared Cumulative NonHedged and Beta Weighted Delta Hedged Performance During Three Market Environments
### Results:
Across three market conditions where the SPY was neutral, bearish, and bullish having short SPY shares to hedge a portfolio of short puts reduced the portfolio volatility. Additionally, when this hedge was maintained throughout the year the hedged and nonhedged portfolios had the same ending P&L while the hedged portfolio had nearly a third less daily P&L volatility.
http://feeds.tastytrade.com/media/90755/TTL_MM_190426_SEG_EDIT.mp4
Fri, 26 Apr 2019 09:53:00 0500
551.117

Market Measures  April 25, 2019  Trading Around Earnings
During earnings season, we generally have an expansion in volatility in individual stocks making way for good trading opportunity.
Typically, we use the closest expiration to place an earnings
trade. What happens if we sell further out?
Study:
...
During earnings season, we generally have an expansion in volatility in individual stocks making way for good trading opportunity.
Typically, we use the closest expiration to place an earnings
trade. What happens if we sell further out?
Study:
* AMZN, JPM, IBM
* 2013  Present
* Sold 16 delta Strangles
* Weekly Expirations
* Front Week, 2 Weeks, 3 Weeks
* Sold the Day Before Earnings
* Covered the Day After
* Recorded Average P/L, Standard Deviation (Risk)
For these underlyings, it seems that adding duration slightly improves the Average P/L while lowering the Standard Deviation.
http://feeds.tastytrade.com/media/90712/TTL_MM_190425_POD.m4a
Thu, 25 Apr 2019 09:30:00 0500
1072.584

Market Measures  April 25, 2019  Trading Around Earnings
During earnings season, we generally have an expansion in volatility in individual stocks making way for good trading opportunity.
Typically, we use the closest expiration to place an earnings
trade. What happens if we sell further out?
Study:
...
During earnings season, we generally have an expansion in volatility in individual stocks making way for good trading opportunity.
Typically, we use the closest expiration to place an earnings
trade. What happens if we sell further out?
Study:
* AMZN, JPM, IBM
* 2013  Present
* Sold 16 delta Strangles
* Weekly Expirations
* Front Week, 2 Weeks, 3 Weeks
* Sold the Day Before Earnings
* Covered the Day After
* Recorded Average P/L, Standard Deviation (Risk)
For these underlyings, it seems that adding duration slightly improves the Average P/L while lowering the Standard Deviation.
http://feeds.tastytrade.com/media/90711/TTL_MM_190425_SEG_EDIT.mp4
Thu, 25 Apr 2019 09:30:00 0500
860.96

Market Measures  April 24, 2019  Delta Hedging a Portfolio
Beta weighting is a popular concept in trading that allows us to measure delta risk across different stock positions. Additionally, the beta weighted delta of a portfolio can be used to create a hedge. If we sold puts in different equities prior to a m...
Beta weighting is a popular concept in trading that allows us to measure delta risk across different stock positions. Additionally, the beta weighted delta of a portfolio can be used to create a hedge. If we sold puts in different equities prior to a market correction, how would a SPY hedge determined by beta weighted deltas protect our portfolio?
### The Study:
* Sold 30 Delta Puts November 8th, 2018, Before the Market Sell Off
* AAPL, IBM, XOM, JNJ, GS
* 45 Days to Expiration
* Held to Expiration
* Compared Cumulative NonHedged and Beta Weighted Delta Hedged Performance
### Results:
In the late 2018 selloff, the SPY fell 25% and a portfolio of short puts in AAPL, IBM, XOM, JNJ, and GS lost more than $13,000. However, when we incorporate a delta hedge with short shares of SPY we reduce our portfolio loss and volatility by nearly a third! That tastyworks platform inherently displays a portfolio’s deltas as beta weighted to SPY and traders can use this number to determine the amount of shares of SPY to buy / sell to maintain a portfolio hedge.
http://feeds.tastytrade.com/media/90658/TTL_MM_190424_POD.m4a
Wed, 24 Apr 2019 09:27:00 0500
881.256

Market Measures  April 24, 2019  Delta Hedging a Portfolio
Beta weighting is a popular concept in trading that allows us to measure delta risk across different stock positions. Additionally, the beta weighted delta of a portfolio can be used to create a hedge. If we sold puts in different equities prior to a m...
Beta weighting is a popular concept in trading that allows us to measure delta risk across different stock positions. Additionally, the beta weighted delta of a portfolio can be used to create a hedge. If we sold puts in different equities prior to a market correction, how would a SPY hedge determined by beta weighted deltas protect our portfolio?
### The Study:
* Sold 30 Delta Puts November 8th, 2018, Before the Market Sell Off
* AAPL, IBM, XOM, JNJ, GS
* 45 Days to Expiration
* Held to Expiration
* Compared Cumulative NonHedged and Beta Weighted Delta Hedged Performance
### Results:
In the late 2018 selloff, the SPY fell 25% and a portfolio of short puts in AAPL, IBM, XOM, JNJ, and GS lost more than $13,000. However, when we incorporate a delta hedge with short shares of SPY we reduce our portfolio loss and volatility by nearly a third! That tastyworks platform inherently displays a portfolio’s deltas as beta weighted to SPY and traders can use this number to determine the amount of shares of SPY to buy / sell to maintain a portfolio hedge.
http://feeds.tastytrade.com/media/90657/TTL_MM_190424_SEG_EDIT.mp4
Wed, 24 Apr 2019 09:27:00 0500
669.636

Market Measures  April 23, 2019  Too Many Occurrences?
Traditional finance would say that there is definitely a problem with over trading.
Tastytrade, however, has a different approach to this argument.
* With commissions as low as they are today ($1 round trip per leg), over trading has become a thi...
Traditional finance would say that there is definitely a problem with over trading.
Tastytrade, however, has a different approach to this argument.
* With commissions as low as they are today ($1 round trip per leg), over trading has become a thing of the past.
* strategic liquidity is available in many more underlyings today than ever before.
* Bidask differentials are tighter today than historical averages.
* Price discovery has been automated with competition.
* By staying small and trading often, we can realize a much more stable win rate over the long run.
Since the selling premium has historically been profitable, the worst thing we can do is not trade often and not take advantage of scale.
http://feeds.tastytrade.com/media/90613/TTL_MM_190423_POD.m4a
Tue, 23 Apr 2019 09:45:00 0500
840.648

Market Measures  April 23, 2019  Too Many Occurrences?
Traditional finance would say that there is definitely a problem with over trading.
Tastytrade, however, has a different approach to this argument.
* With commissions as low as they are today ($1 round trip per leg), over trading has become a thi...
Traditional finance would say that there is definitely a problem with over trading.
Tastytrade, however, has a different approach to this argument.
* With commissions as low as they are today ($1 round trip per leg), over trading has become a thing of the past.
* strategic liquidity is available in many more underlyings today than ever before.
* Bidask differentials are tighter today than historical averages.
* Price discovery has been automated with competition.
* By staying small and trading often, we can realize a much more stable win rate over the long run.
Since the selling premium has historically been profitable, the worst thing we can do is not trade often and not take advantage of scale.
http://feeds.tastytrade.com/media/90612/TTL_MM_190423_SEG_EDIT.mp4
Tue, 23 Apr 2019 09:45:00 0500
628.995

Market Measures  April 22, 2019  Portfolio Theta Ratio  Varying Deltas
In our last market measure, we have concluded that we observe a median theta/asset ratio of 0.05% in our accounts.
This means in a $10,000 portfolio, utilizing 25% of your account, you should expect a minimum of $5 of theta decay per day.
What ab...
In our last market measure, we have concluded that we observe a median theta/asset ratio of 0.05% in our accounts.
This means in a $10,000 portfolio, utilizing 25% of your account, you should expect a minimum of $5 of theta decay per day.
What about Strangles with different deltas?
###Study:
* SPY
* 2005  2018
* 45 DaystoExpiration
* HeldtoExpiration
* Recorded the daily Theta Ratio (Theta / Asset Value)
* $1M Account, 25% Capital Allocation
* Varying Deltas:
* 10, 16, 20, 30, 40, 50
We find that as delta increases, the median theta/asset ratio increases as well until the 30 delta strangle. The 40 and 50 delta strangles exhibit lower theta/asset ratios.
http://feeds.tastytrade.com/media/90575/TTL_MM_190422_POD.m4a
Mon, 22 Apr 2019 09:43:00 0500
786.528

Market Measures  April 22, 2019  Portfolio Theta Ratio  Varying Deltas
In our last market measure, we have concluded that we observe a median theta/asset ratio of 0.05% in our accounts.
This means in a $10,000 portfolio, utilizing 25% of your account, you should expect a minimum of $5 of theta decay per day.
What ab...
In our last market measure, we have concluded that we observe a median theta/asset ratio of 0.05% in our accounts.
This means in a $10,000 portfolio, utilizing 25% of your account, you should expect a minimum of $5 of theta decay per day.
What about Strangles with different deltas?
###Study:
* SPY
* 2005  2018
* 45 DaystoExpiration
* HeldtoExpiration
* Recorded the daily Theta Ratio (Theta / Asset Value)
* $1M Account, 25% Capital Allocation
* Varying Deltas:
* 10, 16, 20, 30, 40, 50
We find that as delta increases, the median theta/asset ratio increases as well until the 30 delta strangle. The 40 and 50 delta strangles exhibit lower theta/asset ratios.
http://feeds.tastytrade.com/media/90574/TTL_MM_190422_SEG_EDIT.mp4
Mon, 22 Apr 2019 09:43:00 0500
574.908