The Skinny on Options: Abstract Applications 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.
The vast, limitless world of derivatives is quite complicated and very complex. So join Dr. Jim and dig beneath the surface – uncover some of the more intricate ideas that this space has to offer, and then apply these abstract concepts into your trading.
The vast, limitless world of derivatives is quite complicated and very complex. So join Dr. Jim and dig beneath the surface – uncover some of the more intricate ideas that this space has to offer, and then apply these abstract concepts into your trading.
tastytrade, Inc.
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tastytrade LIVE  January 27, 2020  Extrinsic Value Lite
As tastytraders, who focus exclusively on selling outofthemoney (OTM) premium, it’s important to recognize that any option that is OTM will be [100% extrinsic value.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheoryt...
As tastytraders, who focus exclusively on selling outofthemoney (OTM) premium, it’s important to recognize that any option that is OTM will be [100% extrinsic value.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice02092017) Furthermore, if these options remain OTM at expiration, their price will fall to zero, and they will effectively be worthless. This is essentially the bestcasescenario for selling OTM options.
As a result, it begs the question: is this a consistently sustainable strategy? In today’s piece, we see that it is not, and a more reasonable expectation is to capture approximately 25% of all the extrinsic that we sell.
http://feeds.tastytrade.com/media/99273/TTL_SOAA_200127_SEG_EDIT.mp4
Mon, 27 Jan 2020 09:05:00 0600
518.952
Extrinsic Value, Option Expiration

tastytrade LIVE  January 27, 2020  Extrinsic Value Lite
As tastytraders, who focus exclusively on selling outofthemoney (OTM) premium, it’s important to recognize that any option that is OTM will be [100% extrinsic value.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheoryt...
As tastytraders, who focus exclusively on selling outofthemoney (OTM) premium, it’s important to recognize that any option that is OTM will be [100% extrinsic value.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice02092017) Furthermore, if these options remain OTM at expiration, their price will fall to zero, and they will effectively be worthless. This is essentially the bestcasescenario for selling OTM options.
As a result, it begs the question: is this a consistently sustainable strategy? In today’s piece, we see that it is not, and a more reasonable expectation is to capture approximately 25% of all the extrinsic that we sell.
http://feeds.tastytrade.com/media/99274/TTL_SOAA_200127_POD.m4a
Mon, 27 Jan 2020 09:05:00 0600
569.616
Extrinsic Value, Option Expiration

tastytrade LIVE  January 13, 2020  More Theta? More Risk
Everything that we do as active traders can be funneled back to either an attempt to [enhance return or mitigate risk.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice10232019) And typically, when we meas...
Everything that we do as active traders can be funneled back to either an attempt to [enhance return or mitigate risk.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice10232019) And typically, when we measure risk, we use more traditional metrics, such as implied volatility or [standard deviation.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice04052016) However, if we stretch our thinking a bit, we see that Theta itself could certainly be viewed as an indirect measure of risk, too.
As we compare and contrast definedrisk and undefinedrisk strategies in SPY, we see this front and center.
http://feeds.tastytrade.com/media/98864/TTL_SOAA_200113_SEG_EDIT.mp4
Mon, 13 Jan 2020 08:59:00 0600
702.602
Standard Deviation, Implied Volatility, Theta

tastytrade LIVE  January 13, 2020  More Theta? More Risk
Everything that we do as active traders can be funneled back to either an attempt to [enhance return or mitigate risk.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice10232019) And typically, when we meas...
Everything that we do as active traders can be funneled back to either an attempt to [enhance return or mitigate risk.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice10232019) And typically, when we measure risk, we use more traditional metrics, such as implied volatility or [standard deviation.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice04052016) However, if we stretch our thinking a bit, we see that Theta itself could certainly be viewed as an indirect measure of risk, too.
As we compare and contrast definedrisk and undefinedrisk strategies in SPY, we see this front and center.
http://feeds.tastytrade.com/media/98865/TTL_SOAA_200113_POD.m4a
Mon, 13 Jan 2020 08:59:00 0600
915.72
Standard Deviation, Implied Volatility, Theta

tastytrade LIVE  January 6, 2020  Deconstructing Option Prices
At their core, option prices can be broken down into two components: [intrinsic value and extrinsic value.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice09242018) And of the variables impacting the extr...
At their core, option prices can be broken down into two components: [intrinsic value and extrinsic value.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice09242018) And of the variables impacting the extrinsic value of an option’s price, time and volatility are clearly the most potent players on a daytoday basis. Interestingly enough, the entire tastytrade philosophy is built off of these two variables.
With time, we like to enter trades around 45 DTE, trade duration over direction, and [handle our winning trades and losing trades very differently.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/portfoliotacticsmanagingwinnersandmanaginglosersvolatilityandrisk11142018) With volatility, the raw implied volatility, implied volatility rank, and changing levels of volatility are all front and center in our portfolios.
http://feeds.tastytrade.com/media/98635/TTL_SOAA_200106_POD.m4a
Mon, 06 Jan 2020 09:18:00 0600
1011.192
IVR, 45 DTE, Black Scholes

tastytrade LIVE  January 6, 2020  Deconstructing Option Prices
At their core, option prices can be broken down into two components: [intrinsic value and extrinsic value.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice09242018) And of the variables impacting the extr...
At their core, option prices can be broken down into two components: [intrinsic value and extrinsic value.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/fromtheorytopractice09242018) And of the variables impacting the extrinsic value of an option’s price, time and volatility are clearly the most potent players on a daytoday basis. Interestingly enough, the entire tastytrade philosophy is built off of these two variables.
With time, we like to enter trades around 45 DTE, trade duration over direction, and [handle our winning trades and losing trades very differently.](https://www.tastytrade.com/tt/shows/fromtheorytopractice/episodes/portfoliotacticsmanagingwinnersandmanaginglosersvolatilityandrisk11142018) With volatility, the raw implied volatility, implied volatility rank, and changing levels of volatility are all front and center in our portfolios.
http://feeds.tastytrade.com/media/98634/TTL_SOAA_200106_SEG_EDIT.mp4
Mon, 06 Jan 2020 09:18:00 0600
798.098
IVR, 45 DTE, Black Scholes

tastytrade LIVE  December 30, 2019  Gamma Risk? DTE > Duration
Our research has shown us over and over again that managing our undefinedrisk trades at 21 DTE is a prudent strategy. This allows us to take advantage of theta’s reliability in the first half of the expiration cycle, [while simultaneously avoiding the...
Our research has shown us over and over again that managing our undefinedrisk trades at 21 DTE is a prudent strategy. This allows us to take advantage of theta’s reliability in the first half of the expiration cycle, [while simultaneously avoiding the increased Gamma Risk in the second half of the expiration cycle.](https://www.tastytrade.com/tt/shows/theskinnyonoptionsabstractapplications/episodes/diminishingexpirationcycles06252018) But this difference naturally begs the question: is it the DTE in the cycle or the duration in the trade that we should be more concerned with?
So in today’s Skinny, we address that exact question.
http://feeds.tastytrade.com/media/98493/TTL_SOAA_191230_SEG_EDIT.mp4
Mon, 30 Dec 2019 09:19:00 0600
518.985
21 DTE, Gamma Risk

tastytrade LIVE  December 30, 2019  Gamma Risk? DTE > Duration
Our research has shown us over and over again that managing our undefinedrisk trades at 21 DTE is a prudent strategy. This allows us to take advantage of theta’s reliability in the first half of the expiration cycle, [while simultaneously avoiding the...
Our research has shown us over and over again that managing our undefinedrisk trades at 21 DTE is a prudent strategy. This allows us to take advantage of theta’s reliability in the first half of the expiration cycle, [while simultaneously avoiding the increased Gamma Risk in the second half of the expiration cycle.](https://www.tastytrade.com/tt/shows/theskinnyonoptionsabstractapplications/episodes/diminishingexpirationcycles06252018) But this difference naturally begs the question: is it the DTE in the cycle or the duration in the trade that we should be more concerned with?
So in today’s Skinny, we address that exact question.
http://feeds.tastytrade.com/media/98494/TTL_SOAA_191230_POD.m4a
Mon, 30 Dec 2019 09:19:00 0600
730.608
21 DTE, Gamma Risk