Profitable Traders Use 20Δ Strangles... We Proved Why
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What Tasty doesnt explain is the importance of delta rebalancing bands. A bad move against any short position that isnt ATM can go really bad as the gamma can ramp up exponentially on further OTM strikes.
Have your min and max delta exposure in mind (ex. "I dont want more than +/- 20 deltas exposure"). The strangle starts delta neutral and you rebalance as it accumulates more than your 20 delta threshold.
These are volatility bets and we shouldnt expect to be rewarded if we're wrong. ATM short straddles are more immediate in their feedback so while your POP is much lower, your max loss also tends to be much lower and your pnl is more evenly distributed vs a low delta strangle which can fool you with consistently positive avg and median pnl but the max loss can be devastating if you dont get to manage your position
Clear as day.
For those interested, the math formula on the first slide is how to calculate a concept called "profit expectancy", simply meaning your average PNL over a large amount of winning and losing trades. It's really helpful if you are trying to determine if a particular strategy will be statistically profitable
Thanks for doing these! It would be interesting to know a bit more about what "15 years of data" means...e.g. Is that opening a trade once a day every day? And for future studies - (opening/closing at what time of day? - does it matter? - e.g. higher IV at the open? etc. OR what if you only opened at certain IVR levels? etc....🤓
I'm an undefined risk scalper who trades ATM ZDTE options on trend days only. Yes, i'm a screen zombie.
got it simple
Why is it that you guys don't use metrics like the Sharpe ratio, Calmar, or MAR?
This is a serious question that I would like to see addressed.
Wrong audience.
Does this mean shortbthe 20delta put and shirt the 20 delta call?
Yes
I wish they do this for 0dte/1dte/7dte
When I use the formula from slide2 and cross-check the 1st column of slide3, I don't understand it:
0.64*197 - (1-0.64)*302 = 17.36
which is not the avrg P/L noted as 32.10
Not sure if I'm missing something but I don't understand these numbers 😢
Agree with you. No idea how they're coming up with the avg P/L numbers. Therefore makes you mistrust the analysis & conclusions.
I appreciate the study. Question is the study was done with SPY, does that mean the other underlyings will respond the same way?
Other research confirms similar underlying all perform similar and the pricing model is extremely accurate. SPY / QQQ / IWM that is. There is far bigger differences in stocks though with more erratic results
@@pilotstefan1322 You said it, other indices may work but individual stocks may not. No surprise as indices are averaging performance of individual stocks.
No way, don’t do it! This only applies to SPY, I don’t care what they say. Learn from my mistakes. Also, 20 Delta is far too aggressive.
Look for Tasty videos that discuss correlation.
Anything higher than 7 deltas on strangles is plainly stupid.
No they don't. Traders who want to bust their account use 20 delta strangles. NO-ONE but Tastytrade trades 20 delta strangles. They are way too close to the money. Tasty wants you to trade them because they want you to roll sides and do lots of other stupid stuff to churn commissions and turnover. Most profitable strangles are 6/7 Deltas. Countless people blew up their accounts trading the "Tasty trade way"
I 100% agree with you, i sell 5-7 delta strangles on various futures underlyings, close at 50% profit or 200% stop loss, has an average 90% win rate and i get around 50% returns on my account each year. Its simple but it works!
Are you saying less than .1 delta? 0.05 - 0.07 delta you're still risking it for pennies. Is it even worth it?
@@mohgujai 5-7 delta not 0.05-0.07delta. on SPY 5-7delta strangle wouldnt get you much premium but on the futures equivalent ES which is leveraged further and uses span margin you get significantly more premium for a similar BP usage. That said ES is my exception, I just sell naked puts at 5-7 delta, leave on for 8 weeks and average 500 dollars on just under 4k margin so 12.5% return in 8 weeks. My strangles are on CL / ZN / ZB / GC / 6A /6E all placed at 70-90dte, added every week on each upto 3 max on each underlying. Usually reach 50% profit in 15-25days average.
@@pilotstefan1322you mean a .05 or .07, correct? SPY? Premiums are super low, but if turned quickly, you are right! Big annual profits and basically always winners…
@@pilotstefan1322what dte and what underlying are best for strangles on futures?
What d'you mean 10Δs wide? You get a strangle at 20 Δs (alright) and then make it 10 Δ wide, the hell you mean by that? No that was a condor. I see. 20 Δ condor with 10 Δ wings. I'm just not convinced volatility is always the same here. You should cut it up volatility-wise. Precentiles 10-15% IV, 15-20% IV, 20-25% IV, 25-30. Close positions at 21 DTE and/or 10%, 25%, 50% max gain. Or else it makes no sense. Just too unrealistic. And what for 0DTEs and futures... How abouthe NASDAQ.. Am I making sense here?
Your honor she looked 25
Naked puts can be a bad hit... so I hear
20 delta Strangles in SPY!!! You say these carry over to stocks in general, but they don’t. I like you guys, but I lost a 💩-ton of money in the 21-22 Bear Market because of your bad advice. Plus back-testing active trading.
Most people who trade options lose money.