Option Strategies: TastyTrade versus MasterTrader – Trading Volatility

If you don't have a trading edge, you will eventually lose money. There's an abundance of resources online about options. I've been a long time follower of yours. Ideally, the put expires out of the money and is worthless. If you claim that the edge is in the duration of your trades giving you enough time to eventually be right, then why trade one day binary events such as earnings where you are collecting many winners and one single loser is devastating?

The term “selling premium” refers to selling options. There are many benefits to selling premium as opposed to buying premium, but there are environments where each strategy can flourish. At tastytrade, we prefer to sell premium .

What Else Ya Got

I might make a little money 3 times, 8 times, 15 times in a row. But at some point the house edge is going to get me. Can it be empirically determined that there are times when selling puts gives me a mathematical edge that beats the house, so to speak?

What does this mean? Take the loss on the naked put So the only positive I'm getting is that it's better to trade options on ETFs to eliminate stock risk While Tastytrade has some good material, I don't like that they often suggest relatively advanced trades for beginners. That said, a naked put is directly equivalent to a covered call.

Covered calls are often suggested as beginner trades. When a person starts leveraging their account, that's where trouble can occur. The other big thing is that the last six years have been a great time to be selling puts.

The backtesters on the sub, don't have to look far to find good strategies for a bull market: That is likely to eventually change, and may change suddenly. It is right to be thinking of the worst case.

I do a lot of naked put selling, also naked strangle selling selling both puts and calls. I tend to use the strike price as a mental stop. Some of the losses can be whoppers, like 5x to 10x the premium collected. By using a mental stop, the whopper losses only tend to occur on a big gap move. If no money is sent in to meet the inevitable margin call, the broker may use market buy orders to meet the margin call, and buy back those puts at 10x to 50x to x to x losses, basis the premium collected.

For individual stocks, big gaps tend to be more common than for SPY. We haven't seen those kind of stock market moves for at least six years, so many new option sellers have a false sense of what the worst case might be.

My advice for beginners, trade small, keep it simple, keep a trading journal to find what works for you. There are a thousand ways to make money in the market. Find one or two that match your personality, that you can have success with.

So are you having successes 5 to 10 times more often than you are having these losses? I assume so, otherwise you wouldn't be doing this. And if so, is this a result of the market happening to have been a long run bull market, or because of the strategy itself independent of the market? That then begs the question Or, is this whole tastytrade ecosystem really designed to do nothing more than make money from affiliation with TD Ameritrade, ads, or however else they monetize themselves?

Does this make sense? Because if this all depends on a bull market to work, then after hours of watching videos we are back to nothing more than betting on whether the market will go up or down. BTW just for the sake of reference, I much prefer The Options Playbook for guides and information on beginning options trading. IMO that makes a lot of sense, since loss on a naked long put is limited to the price of the option contract, whereas loss on a naked short is limited to the price of the stock at the time the contract expires.

Also bear in mind that this only applies to naked options that you write ; if you're just buying options and not writing them, your maximum loss is limited to the price you paid for the contract, since you can always just let the contract expire. Also just FYI, Options Playbook is monetized by getting people to use its own Trading Platform, so IMO its in their interest to give good advice, because you can't earn commissions from broke traders If you keep watching TT, you will see that they aggressively defend losing naked positions.

They only let defined risk losing trades run. As far as the risk issue the TT argument is this: Unless you are a professional this is not practical for beginners. What level of math would you say is required for the strategies you are using? As in, Basic Algebra, Trigonometry, Calculus? Trying to get a rough idea of how much number crunching is involved with these more specialized techniques you guys are using: All of the greeks are calculated by your trading platform.

If you can add and subtract, you'll be alright. I just sold my first option. Iron Condor spread below underlying asset. Watching to figure out exactly how that works out lol. When you factor in rolling any position that gets in trouble, you rarely ever have large losses. Your underlying should not be moving much. I recommend credit spreads, which is basically the same as selling a naked put, you're just also buying the next put in the option chain. Do you hope that because it went down, it's going back up again?

No one knows that, right? Or do you get out of the position at a substantial loss, and hope the next one doesn't do that?

I think, at least for me, trading credit spreads give you a chance to learn and understand what can happen through an expiration cycle. Once you see a few cycles and understand how a lot of your defined risk trades will test you before becoming profitable, you will feel more comfortable selling naked puts or other undefined risk trades. I think if a lot of people got tested on naked puts and those were there first few trades they might panic and pull out losses before giving them a chance to come back in their favor.

Credit spreads should remove this fear if you're just starting. I think that's one of my concerns Once the trade has moved into negative territory, when is it appropriate to "panic" and pull out a loss vs "hope" that the trade returns to profitability. Isn't this where the undefined risk gets so dangerous? This link talks about the best time to exit undefined risk losers that are going badly against you.

Credit spreads are cool, just remember the tighter you keep them the lower your chance of success. Sell Calls into strength, Puts into weakness, and roll into the reverse is also how to receive most premium. Sell into high IVr. If you're going to buy spreads I recommend you do it in low IVr and hope for volatility expansion to make a profit, it's more reliable than a move one way or the other. I think the logic behind the 45 DTE options trades is even in a bull market most movement in that period of time is random and generally understates implied volatility.

The key to selling premium is having a plan. Premium sellers should know when they will roll and when they will look to take profit. My biggest mistake early on was booking a loss I didn't need to.

Had I known more about rescue and repair strategies then I would've rolled the position instead of closing it and made it out ok. Yeah I'm right there right now.

Just jumped into my first expiration cycle pretty hard and trying to figure out what I'm going to do about my losers when time comes. I figure roll em if they're close to being profitable and close em if they are really deep? If you care to elaborate on your positions I'd be happy to share my input. You think that INTC has strong support at 30 and feel bullish in general on the stock. We now simultaneously buy back our spread and sell a new spread 1 - 2 weeks or even 1 - 2 months later depending on how underwater your current position is.

Ideally I like to sell the new spread at a slightly better strike and earn a little more credit if possible. Something like the May So, instead of taking the loss on the initial trade we roll the trade out further and continue with our faith in INTC recovering. LC was a total, absolute, dirty loser for me on earnings. It took half a month, but I've rolled the positions out and today closed them for a scratch. From full loser to scratch by playing duration.

It's things like this that make me sure I'll never look back to old fashioned equity trading or buying premium. You can check out the first segment below, which illustrates the logic behind selling premium through two main points; limiting profitability to improve probability and taking advantage of time decay.

When selling options, the amount of money we get our credit we receive for the option is the most we can make on the trade. We can improve our chances of success by choosing to sell strikes at our desired probability of expiring out of the money. What exactly does this mean? Well, look at it this way One way to do this is to sell a put option. When you sell a put option, you receive a set amount credit for selling the option and you want the price of the stock to stay above the strike price of the put.

Ideally, the put expires out of the money and is worthless. But what strike should you sell the put option at? Well, in the dough platform you can see the probability of each of the available strikes expiring out of the money and then choose your theoretical probability of success at the time you place the trade.

These probabilities are based on the current market conditions at the time you place the trade. Either way, selling options gives us the ability to select probabilities in our favor and improve our chances of making a profit.

MasterTrader Advisory Letter

Since all options have an expiration date, with each day that passes in time, the option’s value will decay and become worth less and less, should all else remain equal. When buying options the time decay works against us, but when selling options, it works in our favor, since the goal when selling is to be able to buy the option back at a lower price . tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any nazokblog.tk: Step Up To Options. Launched in , tastytrade has fast become the most popular financial networks on the web. With 8 hours of live content each weekday there is plenty to keep traders interested, including popular segments such as Game Changers, Daily Dose and Future Stars.