tastytrade Market Measures

Our studies have shown that supplementing IVR with Outlier Rank (OR) increases average P/L and decreases P/L volatility for SPY strangles; however, is this increase in P/L the result of OR limiting tail risk?

Today Tom and Tony discuss whether using Outlier Rank changes the probability of large profits or losses when trading SPY strangles.

We have recently been testing whether “Outlier Rank” (OR) is an effective way to estimate exposure to outlier risk at a given IV level.

Our research has shown that trading 16Δ SPY strangles with low OR and high IVR increases average P/L and decreases P/L volatility; however, what about strangles with different deltas?

Today we show whether supplementing high IVR with low OR can improve profitability and reduce volatility for SPY strangles of different deltas.

When selling strangles, traders have several choices when deciding their short strikes. One popular choice is the 16 Delta put and call because this represents a one standard deviation move. What happens if we sell strangles at the two standard deviation mark?

Today, Tom and Tony discuss the pros and cons of selling two standard deviation strangles.

Statistics and options trading go hand in hand. We use stats in many ways to help develop a mathematical approach to the market.

Today we will cover some of the important elements in our trade approach rooted in statistics, and how we use them to help stack the deck in our favor.

We have recently been testing whether “Outlier Rank” (OR) is an effective way to estimate exposure to outlier risk at a given IV level.

Our recent studies on trading SPY strangles have shown that average PNL is maximized when trading in high IVR & low OR environments; however, how does OR affect trade volatility?

Today we will analyze PNL volatility for this max average PNL method of trading.

Strangles are one of the most used options trade. The risk profile is the the combination of a bullish position and a bearish one, this creates what's known as a delta neutral position. If we are going to trade these we need to know their historical performance. Join Tom and Tony today as they work through the important things to keep an eye on.

Vega is a greek that can be used as a proxy for theoretical risk and reward. But how efficient is it when comparing it to actual risk incurred on historical trades? The answer is very efficient. We find that when comparing theoretical risk (vega) to actual risk incurred in the trade (volatility of P/L), we find that the ratios of the two are identical no matter what delta strangle you sell. This means that as you increase theoretical risk and reward, your actual risk incurred increases proportionally.

IVR does not take into account how much exposure there is to outlier risk at a given IV level, so last week we introduced a concept called OR (Outlier Rank).

Outlier Rank is a way to estimate how often IV has understated an asset's returns in the past month relative to its long term average.

Last week, we found that trading in high IVR/low OR environments may give strangle traders a profit edge.

Today we investigate if trading in high IVR/high OR environments (assuming “returns volatility reversion") is also more profitable than conventional trading strategies.

Implied volatility is an important metric in options trading. Representing the level of uncertainty of future movement in an underlying. As the expiration moves out in time so to does the level of volatility.

When these levels are plotted on a graph, it is call the term structure of volatility. Join Tom and Tony in today’s show as they try to simplify this concept.

Is there any edge in selling puts on big down days? In this piece, we’ll look at the average performance of selling varying delta puts after the market sells off by 0.5%, 1%, and 1.5%