30 Delta Strangle Research by TT

July 26, 2016

Video link below: This is some great research by the Tasty Trade team which discusses long term expectancy of buying 80 delta calls vs. selling 30 delta strangles since 2005 on the SPY.  Buying calls during up trending markets vastly outperformed the short strangles in the same period, about 4 times as profitable with a 90% win rate.  However, as expected, the long call strategy lost a great deal during the down trending periods, taking the overall method negative for the duration of the test.  The SPY was up 80% over the testing duration.  During the down trending periods, the short strangle, including all the market turmoil of the last decade, vastly outperformed as the calls had 0 winners. 

 

So what is the take away for all environments?  The short strangle won 80% in all environments, but took some large losers, which can be managed with spreads or early exits.  Even with the upward bias of the last 10 years of the  markets, selling the strangles had a higher win rate, and were twice as profitable.  Keep in mind the drawdown of these two models would make them untradeable, but the statistics are compelling.  Please see the video link below. 

 

As much as i enjoy the personalities of Tasty Trade, Tom continues to be critical of newsletters.  Some do need to be criticized, but there are a few select newsletters which outperform the markets and many hedge funds.  The GoTradeSignals newsletter posts their entire trade history, delayed, for all to see: http://www.gotradesignals.com/newsletter-information.php

 

Video link: https://www.tastytrade.com/tt/daily_recaps/2016-07-25/episodes/long-calls-vs-short-premium-07-25-2016

 

SPX 24 Hour Butterflies Expectency

July 20, 2016
I wanted to share some interesting trading technology for SPX options. I developed software for exotic options which allowed me to sell iron butterflies on the SPX 4-5 times a week. However, with the advent of more expirations for the SPX, such as Wednesdays, Fridays, EOM, and the soon to be available Monday expirations, the same can almost be accomplished on the SPX.
Here is how the model works.  We take the 1 day straddle divided by the 1 day atr (average true range).  If the ratio is >...
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