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Monday, April 15, 2013

What makes Tasty Traders Different than Other Traders?

I often mention Tasty Trade to people who say they are traders, but their interest  in what I'm trying to say is as vague as if I was another cold caller on the phone offering a new investment scheme.

Tasty Trade is the antithesis of investment schemes.  I was thinking the other day that I need to organize (in my mind) just why I love this approach to trading so much, and need to define what are those differences from the rest of the options universe.. IT IS AN ENTIRELY NEW APPROACH if you are watching TV financial gurus, or subscribing to Option schools and mentors.  Obviously many other professional traders know and use these techniques, but they aren't sharing it with the retail public traders.  This is where TastyTrade excels.  They truly want to educate people, not grab their money.

WHY BELIEVE ME?  I know everyone is trying to tell you how to trade.

The answer is:  I'm not trying to sell you anything.  And I'm earning approximately 5% per month on my capital using this trading philosophy..  That should make you sit up and take notice.  I never did that trading with any other system.  In fact, all I did was lose money.

So here's my attempt at letting you know what they represent, and how they work:  (the real deal is easy to obtain by simply opening a ThinkOrSwim account through the TastyTrade website, for free, and see the fabulous archives of endless information therein).


  •   Nobody else can handle your money better than you can.  If you don't know how, learn. 
  •  The stock market goes up and down.  Nobody can predict which direction it is going, not with charts, not with fundamentals.  It's a 50-50 crap shoot unless you play probabilities.  The news doesn't matter, the talking heads don't matter, the experts don't know any more than you do about the market's future.  Only mathematical probabilities can give a trader an edge.  (There is a multi billion dollar industry out there trying to convince you that you NEED their services.  You don't.)
  • Mathematical probabilities are based on the strategy selected for the circumstances, and the NUMBER OF OCCURRENCES.   In other words, the number of trades you make increases your probabilities of success. (think flipping coins. Flip one coin for a 50-50 chance of success, but what about 10 coins?) There are books to be read on probabilities.  Read them!  So the Tasty Trade anthem is:  Trade small and trade often.  
  • If you keep the number of option contracts small, you can afford to lose 30% of the time as long as you win 70% of the time.  If you "go for the home run" (taking uncalculated risk) you are likely to lose everything you've gained previously.  It happens over and over and over again to new traders.  This bears repeating:  Trade SMALL and trade OFTEN.
  • The particulars of strategies are fascinating.  The more you risk, the better your probabilities of winning.  You have to be willing to take calculated risks which means that always playing it safe is going to give you very little in the way of success.  Naked options (done properly) have a better success rate than Iron Condors, as an example.  But Defined Risk spreads make total sense in some situations.  Tasty Trade has a staff of researchers who are testing the data, going back years in different market conditions, to ascertain which strategies have the highest probabilities of success and how they relate to Delta and number of occurrences. (it's all in the archives)
  • Sellers of options are infinitely more successful than buyers of options.  Be a Seller.
  • The philosophy is that everything returns to the mean, so Standard Deviations (one, two or three) have an active role in choosing your strike prices, and deciding your probabilities. Tasty Traders are mostly contrarians.
  • Volatility and very liquid underlyings are the name of the game.   Compare the volatility of a stock you're interested in  to that of  Netflix or Apple, and check out the daily volume.  Liquid stocks are fairly priced and are efficient.  Slow moving stocks are not.  (even when they have excellent fundamentals and a fantastic chart!)  Sell options into high volatility when premium is rich.  In low volatility markets (like we've had for so long this year)  you almost have to have directional assumptions (which are just that,--pure assumption) and do credit spreads that are directionally biased or  calendars and neutral strategies until  volatility picks up at earnings time.  (many say to do debit spreads in low vol but remember that debit spreads are a 50-50 proposition, whereas credit spreads are more forgiving and can still be directional.)
  • Manage your WINNERS, not your losers.  Trades should be managed at the time you put them on. Do not trade more than you are willing to lose.  If it goes against you, don't waste time managing it, either get out of the trade, let it go, or roll it.   In an iron condor, if one side goes against you, then roll the OTHER side closer to the money, to reduce or eradicate the loss of the losing side.  Take winners when they're winning (close the trade for profits) and don't be greedy holding every trade to expiration in the hope of making more.  (I personally have a $100 expectation;  if my trade reaches profits of $100 per contract, (no matter what the original premium) I close it and get out.  Take the money and run.  Each trader's expectation will be personal, but do have a figure in mind for your escape hatch.  It only takes some wild reverses in the market to convince you that $100 in hand is so much better than $100 loss overnight.
  • The whole concept of Portfolio management is part of this philosophy.  Basically, you manage the entire portfolio with Delta, and Beta weighted, (I use the SPY) to make underlyings correlate.  I am still wrapping my head around this, but I can see that keeping your eye on the overall portfolio makes very good sense, as the market swings direction.  Individual trades become less important, and become just cogs in the giant wheel of trading small and often.

9 comments:

  1. Hi just ran into your blog and it is nice to see someone else who has figured it out. You are absolutely right, this works. I almost wish he will stop telling people about it! But I think his analysis of people's aptitude and willingness for this kind of systematic strategic way of investing is bang on. No one wants to do 30,000 trades over the next 5-10 yrs taking only 25% profits, and I am glad for it. Let them keep waiting for their stock to "pop" and run up 10x the price they bought it... I just spent the last 2 months trading a paper account as focussed as I would a real money account. I am astonished about how successful the strategy is, once you get over the fear of losing and sticking with it. And to think the current market conditions are really poor for us right now, I can't wait to get to 6mths when I will finally put real money on the line.

    Good luck with your trading....But I am sure you'll be successful, you have the numbers on your side!!

    Peace!

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    1. Hi, thanks so much for writing and soooo glad you found it too, and are making it work for you. Exciting, exciting stuff.

      Happy trading!
      Bev

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  2. I have been enjoying reading your posts, Bev. A friend introduced me to options and to tastytrade. The shows are very addicting...funny and informative at the same time. I'm looking forwarding to increasing my number of occurrences this summer and am hoping volatility picks up a bit to improve the premiums. I started using tastytrade's newest platform called dough as well; they are hoping that it will revolutionize the industry has much as TOS has.

    Good luck with the trading! I bet you're account size is getting close to not having to worry about the pattern day trading rules by now!

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    1. Thanks for commenting, Scott. Love to see people trading. Unfortunately, my fund was lost to real estate/recession problems. I've moved, and am now trying
      to get a new fund together. (see my Index for /CL daytrading sweet crude oil) I have a plan~!

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  3. After watching archived videos on the tastytrade site, I wanted to do more digging and I found your site. Great posts and I'm very interested in applying these concepts. I've lost a lot by following "experts" and not paying attention to probabilities. I did have a few questions that I must be missing on tastytrade and I hope you or some of your reader might be able to answer: 1) Is there a number to denote high/low IV? Like > 50% is high? >30%? 2) In low vol environments, it's suggested to enter calendar positions or debit spreads. For the calendar, is it a debit? I'm assuming so. If that's the case, when is the exit for both the calendar and debit spread? When your profit goal is reached? 3) In selling premium it's suggested that the credit be 1/3 the width of the strikes, but the profit won't actually be that much, correct? We'd exit at about 50-80% profit?

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    1. The high/low IV question is a good one! It needs to be in relation to itself (the stock or etf). If "normal" IV is 20% then 50% would be good indeed. But if it runs
      at 50%, then you'd want it hgher. There's great scanning software on TOS where you can set up a scan to give you high IV stocks (or low for that matter). Also theres some items you can program onto your charts that show IV ranking too. But generally speaking 50% and higher is usually pretty good. Anything
      lower is not so exciting. It helps to be familiar with your underlyings "usual" and then jump when it goes higher. (like at earnings!)

      It takes awhile to read through the myriad stuff on Tastytrade, so I encourage you to keep at it. Just put in a search for calendar spreads and you'll get a lot of videos on them (both debit and credit) They talk about exits and about the strategies in much more detail than I could come up with here. I personally don't like calendars, so I'm the wrong person to ask, but maybe someone else will join in. BUT please do use their Search function to find all those subjects that interest you.

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    2. I'm just starting off too. I'd prefer not to do calendars as well, but in this low volatility environment, calendars do work. The tastytrade people tend to use >50% for "high" vol. This is where they'd sell premium.

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    3. Great info! Thanks. Can you comment on what percentage you give up due to commissions. That concerns me the most about this trading approach.

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    4. My viewpoint on commissions is this: 1) Call your broker and negotiate the lowest fees you possibly can, and call again and do it again after your fund gets
      larger and you make more trades; and 2. Don't sweat commissions. They are part of doing business. If you were in the business of selling bicycles, you would have to pay for bicycle parts, overhead, labor, et al. Cost of doing business. Same with commissons. A small % comparatively.

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