Market Measures Podcast
https://www.tastytrade.com
no
enus
℗ & © 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  November 20, 2019  Strangles vs Straddles
Straddles and Strangles are similar trades with different deltas at entry. Despite their similarity, they have different risk profiles. This research investigates how their performance and risk change over time.
On average, Straddles produce great...
Straddles and Strangles are similar trades with different deltas at entry. Despite their similarity, they have different risk profiles. This research investigates how their performance and risk change over time.
On average, Straddles produce greater P/L but with a lower success rate. The Straddle generates its higher returns from the greater theta value when compared to Strangles. However, the Straddle has a much wider range of deltas resulting in greater directional risk and a lower Probability of Success. Knowing these risks and return characteristics allows us to better structure a balanced portfolio of theta and delta exposure.
http://feeds.tastytrade.com/media/97468/TTL_MM_191120_SEG_EDIT.mp4
Wed, 20 Nov 2019 09:19:00 0600
455.588

tastytrade LIVE  November 19, 2019  Daily Range and IV Rank
There are many ways we can use IV Rank as a gauge for opportunity, and today we are going to discuss how it can be an estimator of the daily range in SPY.
###Study
* SPY, 2017 to present (most recent price data)
* Recorded IV Rank
* Recorded da...
There are many ways we can use IV Rank as a gauge for opportunity, and today we are going to discuss how it can be an estimator of the daily range in SPY.
###Study
* SPY, 2017 to present (most recent price data)
* Recorded IV Rank
* Recorded daily range (day’s high minus day’s low)
* Observed relationship between the two
We find that we can estimate the day’s range by using the following formula: IVR * 0.1 + 1. For example, when IVR is 0, the day’s range in the SPY is expected to be 1 point. When IVR is 30, we expect a range of 4 points. When IVR is 100, we expect a range of 11 points.
http://feeds.tastytrade.com/media/97416/TTL_MM_191119_SEG_EDIT.mp4
Tue, 19 Nov 2019 09:29:00 0600
777.143

Market Measures  November 18, 2019  ROC, Risk, and P/L
This segment of Market Measures looks at why relying only on return on capital (ROC) does not always generate high long term performance.
On average, Iron Condors have higher ROC than Strangles. Yet, based on our study, we see that Iron Condors also...
This segment of Market Measures looks at why relying only on return on capital (ROC) does not always generate high long term performance.
On average, Iron Condors have higher ROC than Strangles. Yet, based on our study, we see that Iron Condors also carry more risk.
The study shows that the Strangle has a higher win rate and about half the risk of the Iron Condors. Just because ROC is high for iron condors, does not mean performance will be higher. High ROC does equate to higher risk, however.
http://feeds.tastytrade.com/media/97366/TTL_MM_191118_SEG_EDIT.mp4
Mon, 18 Nov 2019 09:29:00 0600
516.082

Market Measures  November 14, 2019  What Affects Buying Power?
Buying Power Reduction is a complex formula that has many variables in it. How can we simplify it and understand what variables affect it?
###Study
* SPY, 2005 through 2018
* Sold 16 delta strangles
* 45 DTE
* Compared starting buying power r...
Buying Power Reduction is a complex formula that has many variables in it. How can we simplify it and understand what variables affect it?
###Study
* SPY, 2005 through 2018
* Sold 16 delta strangles
* 45 DTE
* Compared starting buying power reduction to:
* Underlying price, initial credit, implied volatility, varying deltas strangles
* Note: All charts use 16 delta strangle data except the chart that compares varying delta strangle BPR
###Results
We find that the variables that affect buying power reduction are underlying price and delta. Initial credit does not have a direct relationship with BPR. IV has a negative relationship with the buying power of a 16 delta strangle.
http://feeds.tastytrade.com/media/97275/TTL_MM_191114_SEG_EDIT.mp4
Thu, 14 Nov 2019 09:38:00 0600
562.829

Market Measures  November 13, 2019  IV and Theta/Vega Ratio
What happens if traders use the ThetaVega ratio as a trade metric upon order entry?
tastytrade's Research Department ran a study to determine the results.
###Study
* Comparing trade metrics when theta / vega ratio is:
* T/V is less than 20
...
What happens if traders use the ThetaVega ratio as a trade metric upon order entry?
tastytrade's Research Department ran a study to determine the results.
###Study
* Comparing trade metrics when theta / vega ratio is:
* T/V is less than 20
* T/V is between 20 and 30
* T/V is greater than 30
* SPY 2005 to Present
* 45 DTE
###Results
Ultimately, our team found that a higher theta/vega ratio yields a larger PnL over time, but since it is highly correlated with IV and IV Rank, we are better off just using IVR in order to avoid calculating another metric.
http://feeds.tastytrade.com/media/97223/TTL_MM_191113_SEG_EDIT.mp4
Wed, 13 Nov 2019 09:12:00 0600
468.501

Market Measures  November 12, 2019  The Chance of Reversion
At tastytrade, most of our trades are based on selling implied volatility when it is high, and hope it goes down throughout the course of the trade. Why is it a logically sound bet for IV to decrease? Answer: IV tends to be mean reverting.
How much ...
At tastytrade, most of our trades are based on selling implied volatility when it is high, and hope it goes down throughout the course of the trade. Why is it a logically sound bet for IV to decrease? Answer: IV tends to be mean reverting.
How much does implied volatility go down when IV Rank is at a certain level?
###Study:
* SPY, 2005present
* Measured IV and IV Rank over a 45day period
* Recorded the average 45day movement in IV (as measured by VIX) based on initial levels of IV Rank
* IVR < 10, between 10 and 20, 20 and 30, 30 and 40, 40 and 50, and above 50
We find that when IV Rank is below 30, IV tends to move against us in a 45 day period. When IVR is above 30, we tend to benefit from IV contraction throughout the trade.
http://feeds.tastytrade.com/media/97176/TTL_MM_191112_SEG_EDIT.mp4
Tue, 12 Nov 2019 09:28:00 0600
573.039

tastytrade LIVE  November 11, 2019  Ratio Setup
A ratio spread will gain its maximum profit when its underlying price is equal to its short leg’s strike. Therefore, if we want to set up a ratio spread in order to have the largest probability to gain the maximum profit, we need to focus on choosing t...
A ratio spread will gain its maximum profit when its underlying price is equal to its short leg’s strike. Therefore, if we want to set up a ratio spread in order to have the largest probability to gain the maximum profit, we need to focus on choosing the appropriate delta for its short position.
According to our study on SPY, stock movement is relatively symmetric with slight upward bias and downside outliers. Based on our study, the 25 delta put is appropriate for put ratios, because the average downward movements of the stock in 45 days is 4.5%, which corresponds to the 25 delta put strike. And similarly, 30 delta call is appropriate for call ratios, because the average upward movements of the stock in 45 days is +3.7%, which corresponds to the 30 delta call strike.
http://feeds.tastytrade.com/media/97131/TTL_MM_191111_SEG_EDIT.mp4
Mon, 11 Nov 2019 09:44:00 0600
612.112

tastytrade LIVE  November 7, 2019  Time In The Money
We can approximate the probability of the stock touching a given strike with the following formula:
Probability of Touch = 2 * [delta of option]
But what is the probability that we touch the strike again, and how many days will an option be in th...
We can approximate the probability of the stock touching a given strike with the following formula:
Probability of Touch = 2 * [delta of option]
But what is the probability that we touch the strike again, and how many days will an option be in the money (ITM)?
This is an important question as having context around a tested strike can help us make more informed decision. Join Tom and Tony today as they introduce some new research on this topic.
http://feeds.tastytrade.com/media/97047/TTL_MM_191107_SEG_EDIT.mp4
Thu, 07 Nov 2019 09:22:00 0600
510.744

Market Measures  November 6, 2019  IV Rank Based Profit Targets
Although high IV Rank results in a greater credit, it does not necessarily relate to faster trade management. Since we receive a greater credit when trading in high IV Rank environments, but we reach the 50% profit target in the same number of days, sh...
Although high IV Rank results in a greater credit, it does not necessarily relate to faster trade management. Since we receive a greater credit when trading in high IV Rank environments, but we reach the 50% profit target in the same number of days, should we manage high IV Rank trades earlier?
Study:
* 16 delta SPY Strangles
* 45 DTE
* 2005 – 2018
* When IV Rank > 50 Compared:
* Managing at 50% max profit
* Managing at 25% max profit
Results:
When you manage strangles at a smaller profit target, you face the potential for large losses to diminish gains. Managing at 50% protects profits. However, when we shorten the data frame to include trades from 2009 – 2017 and avoid 2008, results for both managing at 50% of max profit, and managing at 25% max profit improved dramatically.
http://feeds.tastytrade.com/media/97000/TTL_MM_191106_SEG_EDIT.mp4
Wed, 06 Nov 2019 09:22:00 0600
442.242

tastytrade LIVE  November 5, 2019  Theta and Managing Early
Brand new research!
We know that we collect more theta in periods of high IV almost double at times. In the piece today the guys dig deeper and see how much P/L, on average we keep as a percent of our expected daily move.
Currently, the theta on ...
Brand new research!
We know that we collect more theta in periods of high IV almost double at times. In the piece today the guys dig deeper and see how much P/L, on average we keep as a percent of our expected daily move.
Currently, the theta on a 16∆ strangle in SPY in the December cycle is $7 per day.
This means that theoretically, all other variables equal, the strangle will get $0.07 cheaper by tomorrow, thus yielding a profit to option sellers of $0.07 x 100 = $7.00.
So, what percent of that $7 do we actually see in our daily P/L historically?
Tune in to find out!
http://feeds.tastytrade.com/media/96949/TTL_MM_191105_SEG_EDIT.mp4
Tue, 05 Nov 2019 09:27:00 0600
491.958

Market Measures  November 4, 2019  A Review of Puts
Often we talk about how utilizing options can lead to a better risk/reward outcome than simply holding stock.
Today we are going to do an indepth discussion of selling puts compared to buying and holding stock over a 45day period.
###Study
* S...
Often we talk about how utilizing options can lead to a better risk/reward outcome than simply holding stock.
Today we are going to do an indepth discussion of selling puts compared to buying and holding stock over a 45day period.
###Study
* SPY, 2005  present
* 45 days to expiration
* Selling 5∆, 16∆, 30∆, 50∆ puts
* Buying and holding 100 shares of SPY
* Managed at expiration and 21 days to expiration
* Compared to high volatility environments
* High IV is VIX over 18
We find that by managing puts early, we can achieve a better risk/reward profile than just holding stock, and by selling in higher IV, we have a better opportunity of making money.
http://feeds.tastytrade.com/media/96899/TTL_MM_191104_SEG_EDIT.mp4
Mon, 04 Nov 2019 09:29:00 0600
484.184

tastytrade LIVE  October 31, 2019  Skewing Strangles
Usually, our strategy defaults to using the same delta to start off delta neutral.
What if, instead, we start off premium neutral, i.e. same premium on both sides? How would that affect our risk/reward profile?
###Study
* SPY, 45 DTE, 2005201...
Usually, our strategy defaults to using the same delta to start off delta neutral.
What if, instead, we start off premium neutral, i.e. same premium on both sides? How would that affect our risk/reward profile?
###Study
* SPY, 45 DTE, 20052018
* 16∆ strangle
* Premium equal strangle (16∆P22∆C)
* Managed at expiration and 21 DTE
* Recorded average P/L, and average standard deviation (risk) of P/L of both strategies
###Results
We find that, on average, the premium equal strangle underperforms the normal 16 delta strangle on both risk and reward metrics. The reason? Premium equal strangles are skewed to have negative deltas and therefore are tested on the call side more often than the 16 delta strangle.
The only time that the premium equal strangle would outperform is in periods of market downturns, where the profits from the short call can offset the loss of the short put.
http://feeds.tastytrade.com/media/96816/TTL_MM_191031_SEG_EDIT.mp4
Thu, 31 Oct 2019 09:25:00 0500
576.71

Market Measures  October 30, 2019  Why 45 day Straddles
tastytraders like to sell straddles with 45 days to expiration and manage the trade at 25% of the credit we receive. In an attempt to optimize the straddle, we tested performance with longer trade duration.
We tested Straddles with:
* 45, 60, 90,...
tastytraders like to sell straddles with 45 days to expiration and manage the trade at 25% of the credit we receive. In an attempt to optimize the straddle, we tested performance with longer trade duration.
We tested Straddles with:
* 45, 60, 90, 120, and 150 DTE
* Holding to expiration
* Managing at 25% Max Profit
In both cases, holding to expiration and managing the trade at 25% of the max profit, the 45 day to expiration Straddle outperformed longer duration trades.
http://feeds.tastytrade.com/media/96766/TTL_MM_191030_SEG_EDIT.mp4
Wed, 30 Oct 2019 09:36:00 0500
506.94

Market Measures  October 29, 2019  Managing Straddles at 25 Percent
Managing straddles is a bit of a different game than strangles because it is a more aggressive strategy.
Therefore we like to manage straddles at a specific profit target that is more conservative than other strategies.
###Study
* Sold ATM stra...
Managing straddles is a bit of a different game than strangles because it is a more aggressive strategy.
Therefore we like to manage straddles at a specific profit target that is more conservative than other strategies.
###Study
* Sold ATM straddles and managed them at:
* 25%, 50%, 75%, Expiration
* Compared results when IV Rank over/under 50%
* S&P 500 ETF (SPY)  45 DTE options
* 2005 to present
We find that 25% of max profit as a management point has shown the best success rate and daily P/L out of all the other management points. This management point happens to be around 2530 days to expiration.
http://feeds.tastytrade.com/media/96718/TTL_MM_191029_SEG_EDIT.mp4
Tue, 29 Oct 2019 09:33:00 0500
517.45

Market Measures  October 28, 2019  The "Perfect" Delta
tastytrade usually prefers selling strangles over straddles for a variety of reasons, and today we are going to focus on capital efficiency a.k.a. return on capital.
Return on capital is measured by the credit divided by the buying power reduction. ...
tastytrade usually prefers selling strangles over straddles for a variety of reasons, and today we are going to focus on capital efficiency a.k.a. return on capital.
Return on capital is measured by the credit divided by the buying power reduction. So which strangle has had the greatest return on capital over time?
###Study:
* SPY
* 45 days to expiration
* Sold the 10  50 delta strangles
* Managed at expiration
* Recorded average return on capital
We find that although the 50 delta strangle (straddle) has the greatest potential return on capital (credit received ÷ buying power), the actual return on capital (profit/loss ÷ buying power) is greatest for the 30 delta strangle.
http://feeds.tastytrade.com/media/96671/TTL_MM_191028_SEG_EDIT.mp4
Mon, 28 Oct 2019 09:32:00 0500
597.13

tastytrade LIVE  October 24, 2019  Can We Overtrade?
Traditional finance would say overtrading is a problem that plagues individual investors for the following reasons:
* Overtrading generates a lot of unnecessary commissions
* Overtrading means you are not focused on getting quality trades.
Tas...
Traditional finance would say overtrading is a problem that plagues individual investors for the following reasons:
* Overtrading generates a lot of unnecessary commissions
* Overtrading means you are not focused on getting quality trades.
Tastytrade disagrees. Commissions today are the lowest they have ever been to the point that they are insignificant to the bottom line of retail traders. “Quality” trades do not exist, but rather you can increase your odds of success by trading high probability trades as many times as possible.
http://feeds.tastytrade.com/media/96578/TTL_MM_191024_SEG_EDIT.mp4
Thu, 24 Oct 2019 09:38:00 0500
477.01

tastytrade LIVE  October 23, 2019  Reasons to Trade High IV
Fear is often overstated, but selling premium in the face of a market downturn is daunting! Today, we hope to reduce that fear by showing three key benefits of selling premium in the face of fear.
###Study:
* SPY Strangles, Closest to 45 DTE
* 2005 ...
Fear is often overstated, but selling premium in the face of a market downturn is daunting! Today, we hope to reduce that fear by showing three key benefits of selling premium in the face of fear.
###Study:
* SPY Strangles, Closest to 45 DTE
* 2005 to 2018
* Compared delta:
* 5, 10, 15, 20, 25, 30, 16, 40, 45, 50
* Held All Trades Through expiration
* VIX Threshold of 25 to Determine High Implied Volatility for Trade Entry
###Results:
Selling strangles in high implied volatility leads to:
* Higher P/L
* Greater win rate
* Better return on capital
Fear is generally overstated with the SPY staying within its expected range 84% of the time compared to the expected 68% of the time. ‘Volatility’ is synonymous with ‘Opportunity’ and careful trading during periods of high implied volatility provides a variety of portfolio benefits.
http://feeds.tastytrade.com/media/96527/TTL_MM_191023_SEG_EDIT.mp4
Wed, 23 Oct 2019 09:32:00 0500
504.904

Market Measures  October 22, 2019  Expectations of Daily Moves
Today, we analyzed current market expectations based on previous market movement scales with our study on SPY daily percentage change.
It has been shown that, on average, SPY increases by 0.03% on a daily basis. And the distribution of its daily per...
Today, we analyzed current market expectations based on previous market movement scales with our study on SPY daily percentage change.
It has been shown that, on average, SPY increases by 0.03% on a daily basis. And the distribution of its daily percentage change approximate a normal distribution, but with rather heavy left tail and a clustering around small positive movements.
And we can see that when market experienced extreme movements  like daily absolute percentage change more than 2% or VIX more than 25  there seems to be larger directional drift, though we cannot conclude any certainty on the price reversion.
http://feeds.tastytrade.com/media/96479/TTL_MM_191022_SEG_EDIT.mp4
Tue, 22 Oct 2019 09:30:00 0500
462.395