Ditch 0DTEs in 2024 and Use This DTE Instead | Options Backtests
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- เผยแพร่เมื่อ 23 ธ.ค. 2023
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3:40 CVaR
4:50 45 DTE strangles
6:10 Different deltas
8:50 Manage at 21 DTE
10:50 Takeaways
Thanks for your hard work and insight for 2023. Happy New Year Doug
Great content. Thank you. I am new to the Tasty Channel and looking to find out if you have a video segment on recommended trade management techniques at 21DTE, including leveraging the Greeks to navigate through possible changes one might implement to a trade. Thx.
Can you test 1 week prior or after 21DTE maybe? 14DTE and 28DTE ? Is it similar ? Also is it for short strangles only or does it work for short puts as well?
cool godd info. Happy Holidays.
they should have an option where you click/agree that they will manually close the postion at 21dte regardless if you do then give you a diff CVaR allowing like he said not having to buy those wings. thats the crux of the matter. heck or if its day trade, half, half half half. just an option on options lol.
Hi Tom,
We would like a statistics on Risk to Reward of those clossing mathod discussed. Both managing risk n profitability are equally important.
thanks!!!!!
That was brilliant research. Thank you, Thank you, Thank you!
I don't see CVaR on the Future Options? Is there any way to see CVaR for Future Options?
So, are the results the same with 0DTEs, i.e closing at noon?
Ok the major takeaway for me from this is to manage at 1/2 of DTE regardless of the duration of the option. Thanks
Is it ? I think it's really only at 21 DTE ...
@@johnmoser1162 go listen to the vid again. Early on he says the same principle (managing at 1/2 of DTE) can be applied to basically any length option. It makes sense.
Yes, 1/2 of DTE. For example, if you sell an SPX (or XSP/SPY/ES/QQQ) strangle 6 hours prior to expiration, just close it after 3 hours, to dodge the gamma risk in the last 3 hours.
When he says "manage at 21DTE" what does he mean by manage?
Does he mean "SELL" at the 1/2 way to expiration?
How does this relate to his first statement regarding 0DTE and buying in the afternoon?
This study seems to assume that you choose only ONE of => manage at 21 DTE, close at 50% profit, OR close at 200% stop loss. What happens if you use ALL of those? Whichever happens first. Seems best to me. You act according to the behavior of the underlying.
If you get 50% profit in less than 21 days, defiantly you will close anyways. Also if reach 200% loss before 21 days, that means u already reached max loss or very close to CVaR amount and will close
@@osman3404 agreed. It just seemed like the study only allowed one choice and the others ignored. That’s not how most people work, I don’t think. If you only allow one of them to be used the whole time it skews the results.
I think it makes sense to close at 50% (or whatever your profit target) before 21 DTE, you will eliminate that tail risk by definition. However, if you apply a 'whichever comes first approach' closing before 21 DTE on a 200% loss is suboptimal over time, going by the results of the study.
@@pezzodipunto2239 I guess there could be benefit to giving it a chance to rebound
@@osman3404 Hi OSman. I am trying to understand your point: why do you think that 200% loss would be anywhere near CVaR? It might be, but CVaR might also be (for example) 500% of the credit received. I am assuming that by "loss" they are referring to the percentage of original credit received. If I get a $1 credit on a $500 stock, then 200% loss is only $2, right?
Does this research include making adjustments? If not, how do you factor that in when there are no hard rules for making adjustments?
What do they mean by "manage at 21DTE"? Are they saying sell if it is turning negative, or sell if you already have like a 25% profit?
I've stumbled on that lingo too. I think they say "manage" to mean "close, roll, or adjust."
If we plan to manage at 21 DTE, then why aren't we using that date (instead of 45 DTE) to measure expected move, risk, POP etc? Wouldn't that be the ultimate back of the envelope estimate?
Hold half as long have half the risk? Ok… what am I missing?
If there is anyone up against the fence or feeling some level of trepidation or fear about placing a short strangle trade, just show them this data point.
or show them anyone that sold calls on NVDA. how'd that work out? 🤣
please help up understand your 40 delta strangle setup for a underline?
Sure why not
So I asked this question in your other videos, but didn’t receive a response. Is there an assignment/exercise fee if you let SPX in the money options expire without closing them? Because I’m interested in opening up an account with your firm if there isn’t. Thank you.
SPX is an index. You literally cannot directly buy or sell the underlying in this case. As a result, options on SPX are ALWAYS “cash settled”. There is no such thing as exercise/assignment.
@@tarkenfriske6939 Not if the broker wants to treat them as such. For example, Tradier brokerage charges a ludicrous fee on those cash settled options when they’re in the money on expiration. Are you saying you’re trading these options with Tasty and you’re not being charged these fees? Please elaborate further.
You have that large of an account and self managing or do not have access to those with answers?
Yes it is $5.00 for "Cash Settlement of SPX"
email them and they'll answer right away. But since closing options has no commission, I've always closed SPX options before expiration.
What does "manage at 21 days" mean? What are the details or choices available in "managing"?
This mostly refers to the efficiency of a trade. By selling 45DTE options, and managing (generally going to mean closing) at 21DTE, you will capture the most efficient amount of theta decay. The theta decay curve is the steepest between 45 and 21 DTE, and then the slope starts to flatten back out again. So if you are SELLING options, and have to BUY back to close the trade, you want to buy back when the option is cheaper. And if you know the option loses the most amount of extrinsic value between those 2 expiration cycles, it would only make sense to let them work for you. This is why the typical rules are: correct position sizing, selling options premium, as close to 45DTE, closing the trades at 50% of max profit, let your losers ride to give them more time to recover, looking to closeout the trade as close to 21DTE as possibly ONLY because you know the theta curve is less efficient the more days go by.
Thanks, good explanation!@@mikek5417
Strangle on these big names just going to cost too much buying power. Why not do Iron condor study which make more sense. Since there's no rolling involved does this work for Iron condor?
If taking early profit at 50% does not help alleviate risks that much, why not increase the profit target to 80%?
This is a strange combination of ideas.
Tom says that these are undefined risk trades.
If they are undefined risk trades, then how is it that any measure can define the risk?
If you are in large notional underlying, like the SPX, the losses can easily be catastrophic.
One needs to have some mechanism to stop out of a trade when hit with a strong trend and/or fast moving underlying; there is no way anyone would dumbly look at their trade, with heavy losses mounting and say "I will wait for when the trade is at half the initial DTE before getting out.
Also, if I hit, say, 10% of credit received on T+1, why not just get out?
Perhaps the realistic way to use this information is to use "whichever comes first". If neither your 2x max credit or 50% of max profit isn't hit and the trade is now at 1/2 the initial DTE, then get out.
2 DTE is 0 DTE for experienced daytraders
2dte itm
Attention, if you open at 45 DTE and manage your positions at 44 DTE - you reduce CVaR by 90% (but you won't get any profit too) lol. Of course, if you hold your position for half as long (21 days instead of 45) - of course you will halve CVaR, who would doubt it. What is this research about?
Precisely
I agree.
But I also think that 45-21 DTE is a pretty good profit-CVaR tradeoff, as you get on average 55% of the profit (from watching previous market measures) while keeping only 45% of the CVaR.
Opening at 45 DTE and managing one day later at 44 DTE reduces CVaR by 90%??
The time-weighted variance of returns of a 21 DTE vs 45 DTE log-normal stochastic process is 47%. Since you are using Monte-Carlo simulations where I assume the daily returns are generated assuming a log-normal process, you are already going to get the results you got, by construct. You should use actual historical returns data instead which may not be log-normal. Also, closing the trade at 21 DTE regardless of P&L, will also lead to lower returns (to balance the lower risk of course), you could just size the trade at 47% and hold it till expiry, same thing. And the reason the 50% Max profit strategy didn't reduce CVAR is that very few trades would reach that threshold in 45 days hence most were held till the end. And finally, Tony's constant interjections are frankly annoying. I seriously doubt if he understands what's going on, on the slides. I can sense Tom's irritation at his partner's frequent interruptions. That nightclub joke did not go down well.
If 50% profit target is not frequently reached anyways, I wonder if 75% or a higher target would reduce the chance of prematurely taking profits.
So in 2024 Ditch 0DTE and do 21 DTE?
Yeah the title is misleading. I listened to the end waiting for some info about 0DTE and it was never mentioned, unless I blinked. Tom's early videos about 0DTE were all about why you should avoid them and do 45 DTE instead, so I guess he's back to his old tune.
I been saying this, don’t mess with those 0DTEs. I mess around for fun, like going to Vegas. Use minimum of 30DTEs it gives you time you have to have time you have to be able to help manage the risk. You have no time with 0dte especially after 11:30-12.
Not SPX options but SPY, Qs, individual equities???
Vundebar !
What about the P&L… managing risk is great but we are here to make money.
they are just taking a circuitous route to failure.... this is borderline clownish
@@VicDamoneJr82 it seems their research is always incomplete. They did a great piece on 0DTE where the research says buying 30DTE wings and taking profits at 25% is highly beneficial. What about when the trade doesnt work? What the ideal stop so you maximize your P&L
I simply want the timing of the market…from there I will figure everything else out. 😂
@@WheelerRickRambles
Well if you can learn how to trade before 11 am 0 dte doesn’t matter ever and also scalping 30-40 cents from the etf fund is all you need
@@VicDamoneJr82I wish is that easy though lool
IMHO, discussing the risk without referencing rewards makes no sense. No one is entering the trade to loose. So the metric shouldn't be the max risk but rewards given a sertain risk.
these boomers dont get it ... buying time with 21 days / 45 days is just gambling you either know the 3 patterns of the market or you dont when using 0 DTEs
What are these 3 patterns?
@@astroganov if you knew them would you tell anyone ? Asking for a friend
The 3 are ranged days, trending up days, or down trends
@@carlosdart3118 no thats common sense... it takes years to finds those 3 patterns jack
The problem is one a pattern fires then u place a trade then another pattern fires and own your trade experiences CVaR
Tony adds nothing to your show. Total distraction!
Ditch 0DTE and put money in t bills.