ZEBRA Options Strategy
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- เผยแพร่เมื่อ 27 ก.ย. 2024
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I have been watching Liz and Jenny for about 6 years now..they are excellent traders and teachers..I love the tastytrade platform as well..well done. Trading in Texas
Very clever strategy. Negating the theta decay of the long call/put for a 1 to 1 price movement. Capital efficient.
What's not discussed is that you lose twice as much on the downside (until the stock hits the long strikes) as just owning the stock.
Yes, if you hold it to expiration without management. To be fair though, they do explain how to manage the position when it moves against you, so as not to loose more than if you just held the stock.
When was management discussed? Holding stock is still superior. One commission vs 3 to get in and 3 to get out every 25 to 90 days, not including slippage especially on the deep in the money calls. @@northatlantic2723
They do say you have to manage so you don’t lose less than of you had stock
Wow! You two are really good at teaching! I really love your "Liz, guide me through approach" to show how to apply theory to practice. Awesome video. Thank you so much. I'd love to see you both go through your favorite earning period strategies. If you have one already (which I couldn't find) would you mind posting a link in the reply? That would be highly appreciated. Keep up the great work and looking forward to see more videos of yours.
I really like Liz & Jenny, but the music accompanying the video is so loud and distracting, I can't focus on their instructions. Too bad.
It's awful! My hearing isn't great already and it is so hard to concentrate on the content.
Sorry, I tuned out halfway thru. I couldn't stand the unnecessary, annoying, distracting music competing with the content. Why do creators think this is an enhancement?
Same here. These are great tutorials by this duo and I watch their show on TastyLive most days. I had to turn this off because unnecessary and annoying music. These inserted videos are several years old. i hope they update them rather than insert the old stuff.
Yes the music is annoying but the videos of them explaining the strategy are from 2020 and we're probably buried deep within the site for this reason.
I found the same. Annoying and unnecessary music stopped me out.
Agreed!!!
I'm having the same issue. It looks like they don't have a sound engineer. What a shame. There may have been some gems here, but they want us to listen to music instead.
Great job, friends!
Please tell us how to use zebra for covered call trades
If you use the total debit of the Zebra to buy a deep in the money option that costs the same, the risk graph looks about the same. But the Zebra method has a steeper curve on the down side.
Would like to see a comparison.
Probably having less delta, not washing extrinsic.
The higher IV of deeper ITM options means your paying the same for less delta
Great tool I like the way the short call or put, washes away the extrinsic value, this will definitely allow for you to have a pure stock replacement… that will move dollar for dollar…. Pure genius!!!!
My objection is that for equities you should consider adding a short OTM put for the call zebra, to pay for the higher extrinsic in the calls due to iv skew (but you could move the itm calls closer to ATM to compensate)
But i don't know if IRA margin treats the full spread like a butterfly or ends up having a naked put in the margin requirement.
Anyway, i don't fully appreciate the emphasis on this as a stock replacement, but I do see this as an excellent way to add short-term gamma low-cost, but these do need to be managed. That short can turn into a gamma Storm if not neutralized.
If you sell a put, it would be cash secured which would defeat the purpose of using a zebra for low capital exposure to ~100 delta
@@Brayness 1. There are different ways to compute margin. In an IRA, that may be strictly true (this assumes there is no margin relief for the 4-contract strategy, which I explicitly called out. Please post info about margin calculations if you have it). In other scenarios what you're saying is false (futures and portfolio margin are 2 ready examples)
2. No. There are multiple reasons to put on backratios. capital efficiency is only one. EDIT: this video focused on zebras as stock replacement, so I understand your point about using zebras in this one specific way. However I mentioned that this is a very specific case (and they used a specific construct to achieve it), and there are other uses which are readily apparent, so discussing as if zebras are only good for this one specific case does not make sense.
I’m trying to find the ratchet video that you guys mentioned. Can you point me in the right direction?
The Music absolutely ruins this video Jeez its so dam annoying.
How is this better than a Deep ITM call that also has very little extrinsic value and less risk than a Zebra?
That's EXACTLY my question too. I think I'd rather just buy an ITM call around 75 delta than a bullish zebra.
@@Tell_It_Right Most people recommend 85 delta actually.
@@Tell_It_Right Some people just blindly follow what others say and they have just a superficial understanding of options.
A deep ITM call (or put) likely has much more intrinsic value at risk. But it is another viable way to control time value decay. I suppose it's always best to model one against the other.
Higher IV means paying the same for less delta.
Isn’t diagonal strategy is better? You also take less risk on your capital and take advantage of theta and delta.
Would like to see a comparison.
Wholly dependent on sentiment and situation.
I would request Tasty Live to make the playlists more structured... now it seems this is a bit unorganised.
Why would you want to pay twice as much as a long with a slight hedge. Sell OTM credit spreads to fund the opposite OTM debit spreads in the same direction. If you want uncapped gain, don't do a debit spread, just buy the long. Some call the former a combination and the latter a 3 legged box.
One problem is thanks to equity IV skew, your OTM debit can easily get crushed if a call or be overpriced if a put.
Similar, the call credit often isn't enough for realized moves and the put credit decays too slow to let you exit efficiently.
The ITM put zebra keeps equity IV skew on your side and can offer long gamma for cheap.
The hedge is not slight. You can collect more extrinsic than you're buying and still be long volatility -- few spreads can offer that.
So they can force you to make as many moves as possible. These girls are just advertising, playing with fake money. Everyone being dooped!
I dunno, I would rather just buy a call if bullish. Or put on a synthetic spread with a otm put if bullish for downside protection. Many ways to scalp that pussy…
@@OurNewestMember Thanks for the response. Skew to me is between puts and calls, that is positive skew is when calls generally have higher IV, negative skew, puts are higher IV. Smile just means OTM IV > ATM IV. There is also positive time skew when further out options have higher IV, but this idea of a bull call debit spread getting crushed before you exit or a bullish put credit spread being too expensive, I just haven't seen it since I stay attuned to Powell moments and earnings. Also, with this ZEBRA 2 delta longs for a call position, it's a debit call spread with an extra call, so IV crush would be twice as bad after entry !?!! I just modeled one out for cubes and the break even at expiration is quite a few dollars north of where it would be for a simple debit spread. Finally, there was a guy pushing 3 legged boxes which is just a credit spread and an opposite long at the sold strike price. It was set it and forget it, or a vacation trade. Go 6 months out. If it works early, cash out, if it takes a while, just wait (as long as you sense your direction prediction is going to be right within DTE). Peace out. Trade well.
So to collect more premium you could just sell another call or put right.
Since the ZEBRA is a stock replacement some people sell a higher call, similar to a covered call. This would effectively be two call debit spreads; one with both legs ITM and one having a OTM leg. You would manage each separately (i.e., sell the ITM spread near MAX profit and hold the other spread waiting for it to do the same). Of course you give up potential profit if the stock continues to run.
Why can't you sell stock in a IRA? I thought it was advantageous, as you don't pay capital gain tax and can reinvest the profits.
They're talking about selling short, aka shorting stock.
Good info. unlimited profit is only in theory and not a reality as every option as expiration.
no music please!
I’m nearing 5 years into trading and I’ve only begun to watch these two ladies. A few years ago I could not follow them because they talk much too fast. Now that I understand options, I can comprehend the strategy but the fast talking is off putting. Please slow down, ladies. You have excellent content.
Whoever added the music in the video needs to turn the volume WAY down. Background music should be at about 15% of the main volume.
Maybe I'm missing something here, but what is the difference between ZEBRA and buying a long call or a long put option?
Why not synthetic long ?
Because of less of max loss
PLEASE REMOVE THAT STUPID BACKGROUND MUSIC !!
I have the feeling this is a sure way to be a consistent looser
Focus...
I am trying. Liz has nice cleavage
“Our only risk in this trade is what we paid for it” Yes ladies, there’s still a LOT of risk in this not so great strategy, I’m sorry to say. There’s a better way to do it if you want to trade directional.
That is an extremely low risk for ~100 delta
@@Braynessin some cases I've found it to provide 12-to-1 leverage over shares. Other times just 3-to-1. It's definitely important not to dismiss it and instead add it to your toolbox of tricks.
You're setting people up for losses.
Who the F can understand these two??!! They keep saying “STACK” but I think they mean Stock
They need to do some work so they don’t talk over each other nonstop. 2 minutes in & can’t watch it
Thanks for helping to explain another tool for our toolbox
This at 720 resolution.. a bit hard to see the small numbers clearly. but awesome video.
Good video 👍 thx
Ok I did some more digging to understand this more. I had mistaken this as having zero theta decay, but it's actually zero extrinsic value. Hm so in theory then, can you create a ZEBRA but perhaps you only want to mimic holding 25 shares of a stock? it doesn't always need to be 100 shares right? Because perhaps a 100 shares replacement ZEBRA is too expensive and I can only afford to mimic 25 shares?
for bullish buy a 10 delta call and sell a 15 delta put. Synthetically 25 shares of stock. This should net you a credit. Make sure to use a stop loss.
Right I see. Would this give you a net zero extrinsic value though? Thanks!@@abr2926
@@abr2926new to spreads. What makes the Zebra any better than a synthetic or a vanilla call for example? And how crushed can you get by volatility dropping if you're getting in at high IVR?
I don't understand the point of this. I checked it with AAPL and to use this strategy in calls in the Feb expiration cost about 2100 dollars, OTOH, to buy two 50 delta calls cost about 1500 and has an initial 100 delta which escalates as the price goes up. The downside is less, the upside is more and it costs less. Am I missing something?
You should buy 2 70-delta, and sell one 50-delta. Not to buy 2 50-delta.
Yeah I really want to hear an experienced answer on this, as I'm wondering the same. 🤔 Although, today I did notice if you get a bullish Zebra on $BKNG Jan19 you get about 12-to-1 leverage over shares, so that's a pretty great situation there.
My point is that if you buy two 50 delta (just buy two 50 delta, don't sell anything) you get a better deal than this zebra. The zebra costs more, gives less and has higher downside. @@astroganov
Yes, @@EvanEvansE3 but even with $bkng, if you buy two 50 delta calls, it is cheaper with a higher upside and a slightly lower risk to the downside. $540 as opposed to $580.)
Basically allows you to replicate 100 shares in the underlying at a reduced price, eg you’re long 2 x .75 delta calls one year out, short .50 delta for a net of 100 deltas. So if you’re bullish SPX but don’t want 100% of your cash into one of the S+P tracking ETFs, you can get the same upside exposure but spend 1/4 of the notional on the premium instead of holding 4x the size on the underlying shares. Also can allow you to get even more leverage on the underlying without tying up margin.
How is this different than just buying 2 ATM calls/puts? Aside from the fact the Zebra has only about 50% of the theta decay compared to this
Yes, the theta. Also different gamma and Vega exposure, too. Also if you do it ITM like they show, the contracts tend to decay to Delta 100 instead of Delta zero which can be easier to hedge or plan for.
Buying multiple contracts ATM without a long vol hedge probably won't scale very well
Got it, thanks!@@OurNewestMember
You want to buy deep ITM calls which very little extrinsic value. Never ATM which has the most!
Lower break even to ATM by getting rid of extrinsic value
HELLO
THE EXTRINSIC VALUE OF 2 LONG OPTIONS IF Is NOT EQUAL TO THE EXTRINSIC VALUE OF THE SELL OPTION SHOULD IT BE GREATER OR LESS and why?
THANK YOU
delta busta , delta busta , delta busta !!!
But isnt there theta decay also?
Goal is the sell a short with enough extrinsic to cover the extrinsic in the longs. They called this "washing out the extrinsic value"
@@OurNewestMember There is still theta decay. So its not the same as owning stock. As your paying for theta everyday.
@@Maitreya888 is the "zero extrinsic" part still confusing you after it has been explained twice? Lol
@@OurNewestMember I think your the one confused friend. Your mistaking extrinsic value with theta. Open your platform and setup a zebra. You see there's still no way to have 0 theta decay.
@@Maitreya888 ugh. I'm seeing ATM/ITM backratios available at market prices with negative or positive theta.
1. You can go farther out in time
2. You can go farther from ATM
3. you can use European style options
4. You can put the spread on after ex div
But because of the vol exposure, the greeks when you put the spread on can change substantially, so if you're worried about theta, this might be the wrong spread (because of the long vol components).
I think it makes more sense upon opening these to look at the gamma and other higher order greeks to determine if you're willing/wanting the long vol exposure and what might happen to position value if you do/don't capture realized volatility.
Which goes back to why theta is misleading here. Who gives af if theta is positive if you end up getting wrecked by gamma? ...eg, because your longs lost vol pricing (eg, see higher order Greek "color") and you're left with a short near ATM approaching expiration. You can expect very high positive theta (again this will have changed since opening), but you'll also have various ways to lose $$ quickly.
Theta matters, but it's kind of a boondoggle for ratios. Net extrinsic is a reasonable proxy for long/short vol risk. And the greeks for these can change so much, it's a mistake to get too attached to the values at open. And even if the position starts or becomes theta positive, you might have a terrible time managing your vol exposure.
Good luck
quick question. If you use longer Expiration date (1 year for example), could you sell covered call ? I guess you could sell only 1 covered call. Am I correct?
Well, if you are considering selling a covered call, it means you are likely expecting some downside in a security you own. Using their strategy, you would buy 2 70 Delta puts and sell 1 50 Delta put for each 100 shares of stock you own. If the stock goes down, its loss is absorbed by the gain in the strategy. If the stock goes up, the loss in the strategy is absorbed by the gain in the stock. In other words, it'd sort of "freeze" your account exposure in the shares. The strategy behind a covered call has different outcomes, different risks.
Adding a short call to the call Zebra would make it two call verticals, capping the upside potential.
Stock goes down 3.6%, you lose 50%. Awesome...!
Que guapas se ven las 2, con todo respeto por supuesto 😜