The simplified Expected Move formula “Stock Price ✕ (IV / 100) ✕ SquareRoot(N / 365)” allows for traders to easily calculate the market’s expectation for a particular stock to move a certain amount over any number of days. Remember, implied vol

Room for Opportunity

Aug 4th, 2020 7m 41s

Short premium positions are most profitable in high IV environments, and we trade IVR > 30 as a rule of thumb to ensure this. However, if IVR becomes skewed, there may still be short premium opportunities when IVR < 30. With all the major index

Risk In An Options Portfolio

May 21st, 2020 13m 49s

Quantifying the overall risk factors of a portfolio becomes more complicated when you begin including options in addition to equities. The Greeks can be used to characterize risk for individual option contracts, as well as the overall risk of m

Changing Delta

Mar 10th, 2020 8m 24s

Using delta as our strike selection allows us to get a fairly accurate representation of the risk we are taking on relative to the premium we collect. Over the years, delta has adjusted for the growth in stock price, changes in volatility, and

The Concept of Going Inverted

Mar 4th, 2020 8m 37s

In a market like last week, where one side of a strangle gets tested extremely quickly, we generally have a set of mechanics to defend the position. We call this “rolling up the untested put” or “rolling down the untested call” depending on whi

What the Heck is Skew

Mar 3rd, 2020 17m 33s

Skew is where traders perceive the most risk. For example, for equities, the velocity of risk, and therefore skew, is to the downside because when markets drop, they drop much faster than they rise on average. For commodities, the velocity of r

Volatility Surfaces

Feb 19th, 2020 20m 30s

Option pricing models require assumptions about stock price dynamics that are not entirely accurate. For instance, the Black-Scholes model assumes that stock prices follow Geometric Brownian motion, which does not take into account jumps, split

Dynamic Delta

Feb 19th, 2020 8m 34s

Delta measures the probability of an option expiring in the money, but what does this mean for us? Using delta as our strike selection allows us to get a fairly accurate representation of the risk we are taking on relative to the premium we col

Conditional Probability

Feb 12th, 2020 15m 20s

While event probability is essential to traders, it does not take into account related past events that may be relevant. Conditional probability is a way to estimate the likelihood of an event in the context of known information. Using the cond

Uses of Delta

Feb 11th, 2020 10m 7s

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

An Introduction to Diversification

Feb 7th, 2020 10m 16s

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 cond

Volatility Contraction on Up Days

Feb 5th, 2020 6m 34s

How much does implied volatility contract when there are up days? Study SPY 2005 to present Recorded the magnitude and frequency of volatility contractions when the market moved up We find that the when the market moves up on any day, we see

Time in the Money

Feb 5th, 2020 1s

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 av

POP and PnL

Jan 29th, 2020 10m 5s

Tom and Tony discuss why tastytrade prefers to trade the middle ground between average P/L and probability of profit. Reasons include: less whipsaw and P/L volatility than higher delta strangles higher ROC than lower delta strangles higher opp

Iron Condors vs. IVR

Jan 29th, 2020 9m 4s

Iron condors are one of tastytrade's commonly used defined risk strategies. But how do they perform when we look at specific market environments? Study Compared Iron Condors with short 30 delta options and long wings $5, $10, and $20 wide All

Gamma-Theta Tradeoff

Jan 22nd, 2020 8m 48s

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 wi

Why Vol Expands

Jan 22nd, 2020 8m 14s

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 p

Correlation vs. Cointegration

Jan 15th, 2020 15m 49s

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 ofte

History of IV Rank

Jan 15th, 2020 7m 58s

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 incr

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