HomeОбразованиеRelated VideosMore From: tastytrade

Most Important Options Trading Lessons Part 1 | Market Measures

118 ratings | 10855 views
Find out the most important options trading takeaways and lessons to improve your probability of success! See more videos from the Market Measures Series: http://ow.ly/GBCqz Now that the end of the year is upon us, we thought it would be a good idea to take a step back and review some of the most popular Market Measures of 2014. Not only are these some of the most viewed segments, they also highlight a number of our main trading strategies. Tom Sosnoff and Tony Battista will be covering why we sell premium, two of our favorite strategies (Strangles and Straddles) and how we can defend these strategies by rolling the trade. First, the guys look at a great study of why we sell premium instead of buying it. Tom and Tony explain how Implied Volatility (IV) is often overstated. This provides selling premium with an edge over buying it. By this we mean that we are able to sell premium that is overpriced compared to the move that the underlying will actually see. Next, Tom and Tony look at two very popular strategies, Strangles and Straddles. They compare the two using a number of metrics including total profit and return on capital. This is very important because we always want to use our capital as efficiently as possible. The guys take the study one step further and show the results of both strategies when they are placed in High IV compared with their results in Low IV. Finally, Tom and Tony cover how they would defend a Strangle that has been tested. Traditional position management would suggest defending the tested side of a position. However, we have found that it is more beneficial to roll the untested side in order to bring in additional credit and extend our breakeven points. The guys show this by comparing 4 different rolling strategies and proving that rolling the untested side is the most beneficial. 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. You can watch a new Market Measures episode live and check out all previous episodes everyday at http://ow.ly/EoyGW! ======== tastytrade.com ======== Finally a financial network for traders, built by traders. Hosted by Tom Sosnoff and Tony Battista tastytrade is a real financial network with 8 hours of live programming five days a week during market hours. Tune in and learn how to trade options successfully and make the most of your investments! http://goo.gl/EaF69C Subscribe to our YouTube channel: http://ow.ly/EbyTn Watch tastytrade LIVE daily Monday-Friday 7am-3:15pmCT: http://ow.ly/EbzUU Download our mobile app, Bob the Trader: (ow.ly shortened link) Follow tastytrade on Twitter: https://twitter.com/tastytrade Become a fan of tastytrade on Facebook: https://www.facebook.com/tastytrade Follow tastytrade on LinkedIn: http://www.linkedin.com/company/tastytrade Follow tastytrade on Instagram: http://instagram.com/tastytrade Follow tastytrade on Pinterest: http://www.pinterest.com/tastytrade/
Html code for embedding videos on your blog
Text Comments (11)
HB Stone (5 months ago)
7:11 "Buying strangles comes in at 17%, which is exactly where it's supposed to be." But why? If you just said you have 70% POP then wouldn't it be 30% buying and 70% selling? Is that because of the fluctuating IVR, or how does 70% become 83% for selling strangles?
Leggo My Ego (26 days ago)
The difference is because POP is based on implied volatility and implied volatility almost always overstates what turns out to be the realized volatility. Options are just like insurance. Think of it like selling hurricane insurance on your home. For example, say you have a $100K house and the probability of a hurricane hitting the house is 30% a year (incredibly high). If insurance was a zero sum game then you'd have to pay me $30K each year to insure your house. Except insurance and options isn't a zero sum game, so I'm going to price the insurance/options higher than $30K so that I earn a profit. So to analogize to the video, I'm going to charge you $43K a year to insure your house against hurricanes even though in a zero sum game I should be only charging you $30K. However, when you're selling options you do have to recognize that a certain percentage of the time the hurricane will hit and you will have to pay out a significant amount of money on the insurance/option.
Eli Steinberger (2 years ago)
great piece --- but isn't the overall P&L better doing 1000 trades averaging 66$, than 220 times doing the 101$?
Johan Benade (3 years ago)
Maybe I missed it but what do you do with the tested side when you roll the untested side?
Johan Benade (3 years ago)
Great, got it, thanks!
tastytrade (3 years ago)
+Johan Benade Hi, Johan: When we roll the untested side, we will leave the tested side alone. This additional credit will widen our breakeven and we will look for the underlying to revert lower so that the entire position can be closed for a win. Make sense?
Larry Taylor (3 years ago)
Nice video!!!
bripowered (3 years ago)
Awesome segment!
Mr Mackey (3 years ago)
I've been watching for a while and even trading credit spreads. What is rolling up? And does anybody know how to check implied volatility in etrade's system?
Mr Mackey (3 years ago)
Yes it does thank you so much!
tastytrade (3 years ago)
Hi, Onix: IV is readily available on both dough and the TOS platforms. Rolling up refers to moving the untested side of a two sided spread (Iron Condor, Strangle) closer to the money in order to collect a larger amount of credit. This is done by closing your original leg and selling another option closer to the money. Hope this helps - thanks for commenting!

Would you like to comment?

Join YouTube for a free account, or sign in if you are already a member.