tastytrade Options Jive

Delta represents the change in the option value when the underlying moves up by $1.

For example, an option with a delta of 50 would move by $0.50 when the stock moves up by $1. Similarly, an option with a delta of -50 would lose $0.50 in value when the underlying moves up $1.

Delta can tell us how many shares we are synthetically long or short. For example, an option with 25 delta is the same directional position as being long 25 shares of the underlying.

Tune in as Tom and Tony walk through this greek and why it's such a large component of options trading.

Traditional finance reminds us that it's prudent to diversify our portfolios...that we should never put all of our eggs in one basket. It's good practice to split up our eggs across multiple baskets.

To examine this idea, the research team conducted a study that compared the risk/return profile of a few single stocks versus a portfolio that was evenly allocated across all those same stocks. What we see is that diversification does indeed leave us with a more balanced risk/return profile.

This segment of Options Jive looks at how many days calls and puts are in the money (ITM).

As option sellers, we want our options to expire out of the money. So how long do calls and puts typically spend in the money?

The study shows that on average, calls spend almost twice as many days in the money than puts. Calls are also more likely than puts to spend more than one day in the money.

Gamma measures the sensitivity of option delta to changes in the underlying price, and theta describes the time decay of the extrinsic value of the option.

These two Greeks typically have an inverse sign relationship, meaning that a contract with a positive gamma will often have negative theta and vice versa.

This relationship, often described as the gamma-theta tradeoff, presents both benefits and risks to the buyers and sellers of options contracts.

Tune in as Tom and Tony walk through this concept.

Contrary to popular belief, volatility is not dependent on the directional price movements of underlyings. Certain underlyings tend to have a different relationship between price moves of the underlying

Volatility is dependent on magnitude of price movements and not the direction of price movements.

Tune in as Tom and Tony discuss this concept in depth!

Here we discuss correlation and cointegration, the differences between them, how they're measured, and what they're each used for. We also look at examples of ETF pairs that demonstrate both correlation and cointegration!

Although they are often related, correlated assets tend to move in tandem while cointegrated assets tend to have a mean-reverting spread. This makes correlation ideal when focusing on portfolio diversification, and cointegration ideal for strategies that rely on mean-reversion.

IV rank was developed in 2000 and has been improved since then to become a critical tool in determining trade decisions.

The fundamental reason for it working comes down to the philosophy of mean reversion in implied volatility.

As IV rank increases, there is a greater chance of IV mean-reverting and bringing profits to option sellers. When trades are placed in high IVR environments, we earn more than double the profits on average than when trades are placed in low IVR environments.