TT - MM: Duration and Volatility, 11/18/13

TastyTrade - Market Measures

Take away:

• Entry: IWM, XLE, EEM, GLD, and EWZ
• Sell 1SD strangle when IV Rank crosses above 80%
• Compare 18 DTE and 45 DTE
• Exit: Manage trades at 25%, 50%, and 75% of max profit
• Compare to staying in until expiration

TT - MM: High Probability Strangles, 11/15/13

TastyTrade - Market Measures

Takeout:

When making high probability trades in large indices with high IV Rank, how do we manage winners based on P/L per day?

• Entry: 5 years in SPX, NDX, and RUT
• IV Rank above 50%
• Sold a 2SD Strangle (97.5% OTM)
• Exit:
• 25%, 50%, and 75% of max profit
• Compared to closing day prior to expiration to avoid assignment

• NDX had highest P/L-per-day at 25%
• RUT had highest P/L-per-day at 50%, but only slightly more than at 25%
• SPX had highest P/L-per-day at 25%
• Short strangles tie up lots of capital so managing winners at 25% returns the highest P/L-per-day and reduces the number of days in trade
• If you don't need to free up the capital, let these high probability trades run!

TT - MM: IV Rank and Managing Winners, 11/06/13

TastyTrade - Managing Winners

Carry-out:

• Entry: look at AAPL and GOOG back to 2008, PCLN back to 2010
• High IV Rank (> 50%)
• Sold Big Boy Iron Condor w/45DTE
• Short strikes at 84% OTM
• Wings are 20 points out ($20 spreads)
• Exit:
• 25%, 50%, and 75% of max profit
• Compare to holding until expiration
• If target wasn't reached the position was held until expiration
• Determine drop in IV Rank over length of trade

• Close at 25% to maximize P/L-per-day and free up capital
• Close at 50% to maximize P/L and reduce losers
• No reason to hold longer (unless perhaps IC is centered and POT of shorts is very low)

TT - MM: Managing Winners, 08/29/13

TastyTrade - Market Measures

• The trading industry tells us to always manage our risk.
• If everyone is always managing their risk, and no one is making money, how does managing our risk work?
• Screw managing risk! Let’s just manage our winners!

• Underlying assumptions could be about the stock, the stock’s volatility, or the sector.

• If I've made 50% of my potential in one day then it makes no sense to hold for 39 more days.
• If I've made 60% of my profit with 50% of the time remaining I should probably cash in.
• Underlying conditions:
• If I'm short premium and premium starts to increase...
• If I'm short delta and the market starts to rally…
• Overall portfolio: How is my P/L?

• If we've made 90% with 2 weeks to go it makes no sense to stay in.

• A 1 standard deviation strangle has a 32% chance of losing and a 68% chance of staying between the strikes and expiring.
• (Shorting a strangle is a naked position and therefore carries a large margin requirement.)
• TastyTrade video: Standard Deviation 1 from 18-Jun-2012 (starts at 2:00), or YouTube.

• SBUX, AAPL, NFLX: all had monster runs, one way or the other in the past 2 years.
• AAPL and NFLX had exaggerated moves in both directions.
• SBUX had one-way move up.
• We chose a strangle which in reality wants a stock to stay within a specific range.

• Suppose you sold a SPY strangle for $1 and bought it back when it dropped to $0.75, it would have been profitable 100% of the time. (.25 net out of 1.00 potential)
• Holding until 50% profit only lost once and produced both higher profits and profits per day.
• Holding out for more than 50% produced more losers, a negligible increase in profits, and a lower average profit per day.
• Therefore, optimal target % was between 25 and 50% of maximum potential profit.
• Avg. P/L per Day = (P/L) / (avg # of days held) / (24 cycles)