IVR is a great metric for estimating the relative inflation of option prices at a given time; however, it does not take outlier risk into account.

Today Tom and Tony discuss an example of how to estimate the relative amount of outlier risk at a certain time, outlier rank.

We investigate how this can be incorporated into a trading strategy, and how the modified trading strategy performs against trading SPY strangles.

If you have been following the markets this year, you may have noticed on days when the market had large percentage moves, the market would temporarily stop trading.

We call the scenario “halting the market” or we might say that the circuit breakers were triggered.

Join Tom and Tony today as they cover this mechanic within the exchange system.

The Research Team dives deep into a concept that is hotly contested...getting short after a number of up days have been observed. We find that selling a call on any randomly selected day yields the same results as selling calls after a number of consecutive up days.

Future Basis is the difference in pricing of contracts along the futures curve.

Observing the spot price which is referred to simply as the cash market, can be compared to future prices to determine the current premium or discount in the market.

Join Tom and Tony as they review this important topic to understand.

Individual stocks are subject to single company risk, and thus are more prone to more volatile returns compared to assets and portfolios that are diversified.

Today we show how strangles on single company stocks in the tech sector can have PNLs that are nearly 12x more volatile than strangles on ETFs that track the market.

The market (SPY), spanning many different sectors and companies, is inherently diversified and has limited sector- and company-specific risks.

Trading 5 delta options has 95%+ probability to win, much higher than 16 or larger delta positions.

Should we use it consistently? Where’s the risk?

Today, Tom and Tony discuss the risk of trading extremely high probability options.

The Research Team goes back to 1929 and analyzes every crash that is comparable in magnitude to the 2020 crash, and then measured their subsequent recoveries. The comparison is astounding...with the 2020 recovery being roughly 7 to 8 times faster than comparable recoveries in history

Theta is the daily premium that traders expect to receive if everything stays the same.

So how much theta should we have in our portfolio on a daily basis?

Today, Tom and Tony discuss the theta range in a portfolio by allocating 25% of the capital.

When comparing volatility of Smalls products and micro futures products, the Research Team finds that the Smalls Stocks 75 has roughly 30% more volatility than the micro S&P 500 futures. However, the Smalls Dollar and Smalls Precious Metals futures have roughly the same volatility as the micro Euro and the micro gold contracts respectively

Pairs trading is a classic statistical arbitrage strategy that allows an investor to offset the losses from a poorly performing asset using a correlated asset with better performance.

Tom and Tony show an example of how to trade options on the divergence of correlated index pairs using the “IV-Adjusted Notional Rank.”

They will also show how doing so can reduce portfolio volatility, compared to trading strangled on the individual underlyings respectively.