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This may be the single greatest option trading video of all time. Ive recently started selling put credit spreads and making consistent profit but I always wondered if there was data available on this strategy. You, sir, have provided exactly what I was looking for. I wish I could like this video 100 times.
Wow. I have consumed literally hundreds and hundreds of hours of option education content and this might be the most valuable half hour I have ever seen. Well done sir!
@@markmcnair5864 I just recently started, I have profited once, but it is kinda of scary. Plus is the spread minus the credit your true mas loss? or can you lose more on a dividend day or something? Because I have and option put credit spread contract for spy tomorrow which most likely will be profitable but just in case I do get excercised, do I pay them dividends too?
@@parampreetsingh8768 that formula is correct. Dividends should not come into play because you do not own any actual stock. Only the contract that allows you to buy/sell etc. If trading causes concern, then definitely keep you max losses very low (maybe 1% of total account size or less) and continue to trade spreads for a while before writing any naked contracts.
The strategy at 22:30 is what I do on a weekly time frame with 5% per trade, not the account. I've been averaging 3% a week. This is right on the money. Wish I saw this video before I started trading spreads.
Phenomenal analysis, this channel is the absolute best. I will definitely be trying this strategy going forward. 👍 22:36 - Credit Spread strategy with management. Entry: VIX < 30 Exit: T+30 Profit: 75% Stop-loss: -150% Size: 5%
This guy is really good at explaining stock options. I've watched so many of his videos over about 2 months. I have learned so much. I recently started trading options and have done very well with his advice. I like in this video he says if those gains are not good enough for you I don't know what to say. Lol !!! It's true this is not a get rich quick thing. If you can get a 30% return or better in a short amount of time ( a week or a month) that is amazing. Anyway thank you for the videos. Your videos have helped me make a few extra bucks a month. I pray that God will bless you for all the people you are helping with your knowledge.
Wow! Chris, this is some amazingly useful information and a great demonstration of how the stop loss, profit target, and allocation size can affect profitability and draw downs. Thanks for the hard work putting this together!
What a great video to come across as I’m trying to get into credit spreads! An updated video of this content would be great. Thank you for the great content!
Wow. This is great material. One missing piece that I am looking for is the trade-off between position size and spread width. How to compare wider spreads and less contracts vs narrower spreads and more contracts. For example, if I want my max loss to be less than $5000, then how do I decide among ten $5 wide spread, three $15 wide spread or one $50 wide spread? I know options are all about trade-off but I don't have a clear view now about the trade-off between these two choices.
Great question and I also had a similar question along those lines. Because this was asked 3 months ago, I was just wondering if you already come up with an answer for your question? If so could you briefly clarify it please or could you recommend any studying material that made you see the answer? Cheers mate
18:50 I recently watched your Iron Condor management video and the conclusion there was that VIX >23.5 yielded the best results. Why is it different here?
how do you monitor the credit spread price for stoploss/takeprofit intraday without staring at the screen all day? or is there a way to enter these orders/rules before hand in tastyworks?
Thanks for the video :) Did you strictly select the deltas for all the trades you were talking about ? Those deltas really determine the probability of success ? What delta should we look for with higher Vix? Thanks again I love your videos
Thanks for posting. Excellent. I requested this one in one of your previous video. I have few questions. 1)Are you picking up 45 DTE but close the position at the end of 30 days whether is profit or loss? 2)Why 30 delta and 16 delta. Why not say start with X delta go 5 or 10 point wide. For SPX 30 delta/16 delta is too wide. 3)Based on 15% allocation to this strategy say you can enter 5 credit spreads. Are you entering all the 5 credit spreads all at once or it is better to stagger them may one per day or one per week. Thanks again for great post. Hoping to hear from you.
1) Yes, the trades are closed at the end of the trading month (after about 30 days) because it was easier to ensure the same DTE at each trade entry. Also, I use time-based exits in my trades all the time, meaning I'll close after a certain amount of time has elapsed no matter if it's a winner or loser. 2) It was a happy medium between 16-delta / 10/5-delta spreads. The 30 delta / 16 delta had decent risk reward. If you went $5 - $10 wide on the spreads, the risk reward would be significantly worse, like 10:1 (you can lose 10x more than you can make). Due to the downside skew in SPY, we have to sell really wide put spreads to get good premiums. 3) All spreads were entered at once. You can certainly stagger your entries in real life. Don't take this plan as fact. You can adjust it however you see fit. You can extract the management techniques in this video and apply them to your own strategies, but I'm not guaranteeing the results will be positive as the results in this video are strictly for the setup and rules.
@@projectfinance Thanks for taking your time to reply. Since you have used end of the day quotes stop losees may hurt more than whats the backtest says. Intraday vol spikes/sudden down moves may touch stop targets. Most of the times prices recovers. Am I right?
I'm new with put credit spread and never used stop loss for the two trades I made prior to watching this video. this video just got me a little confused after a while. I need help understanding this stop loss setting concept.
Hey Chris, thanks for this very comprehensive video. Much appreciated. You have indicated entering this particular trade when VIX is below 30, which is a useful and specific guideline. Both Option Alpha and your friends at Tasty Trade indicate that one should not sell options for any particular ETF or stock unless IVP or IVR is at least 50 and the higher the better. Your statement "Contrary to popular belief, lower implied volatility environments are very favorable for options-selling strategies, as realized market volatility is low." seems to contradict the other guys. I'm unsure how to interpret your statement for all other ETFs/stocks when selling options. What does "lower implied volatility environments" mean as that is a relative description vs what you indicated for the SPY trade described in the video (enter when VIX is below 30)? Can you quantify or be more specific in your guideline when selling options for other ETFs/stocks?
I wonder how well rolling the spreads out will work when the trade moves against you as opposed to just eating the loss. For example, if a stock is over sold and is likely to recover, it would make more sense to roll the spread and take a small loss or even roll it for a credit if your lucky and just have the new spread expire worthless as the stock recovers. This way you can avoid taking massive losses when the decrease in the stock price isn't really justified or supported by any of the company's fundamentals.
Very good research and concise. I wonder if the largest loss figure can be minimised if Calls credit spread was used instead of puts. Basically, maintain the same management/entry criteria, but alter the VIX entry to reflect the switch to Calls. My rationale here is the market tends to rise slowly but falls quickly hence the large drawdown with puts. Basically , the market has a nasty habit of using the stairs when going up and taking the elevator on the way down.
I like the strategy and analytics. I suggest the performance of the cumulative would be affected by yearly taxes. A typical marginal rate of 25% would change things a bit. I appreciate your work and have learned a good deal from it. Thank you much!
So, today is Nov 2nd, 2020, the first trading day of November. If i set up a 30/16 delta put spread and looking to exit on Nov 30. 2020. what expiration date should i go for? based on the strategy you discussed in the vieo
Thanks for another great instructional video Chris. Very well presented. I agree with selling put spreads when IV is low, because low IV indicates complacency and a possible crash. IV was low for months prior to March 2020. When IV is high though, Naked puts after sell offs should do well I think.
Awesome video Chris! Learned a lot just by watching your videos. Have some questions though, what's the rationale behind Selling -30 Delta and Buying -16 Delta? When you trade credit spreads is this the width that you normally use? Thanks again!
Thanks for the video. Why did you choose the 16-delta long put vs using a tight spread like the 28-delta put? You can get more credit for the same capital at risk (albeit you have larger slippage costs). Also, why not allocate a larger portion of the portfolio-- say 25%-- since it would yield a higher return. I get that there could be some crazy event which totally wipes out your open spreads (like Black Monday), but there could be additions to the system to avoid huge events like that (say liquidate all positions if X happens).
This is exactly what I'm looking for. I was very confused since spreads are only strategies and operating on them daily seems very stressful. My question for you Chris: What are the tools you used in this study? How did you setup a study like this? Where can I learn more of this kind of study? Thanks!
If I make my spread that wide it risk soo much more that the profit. But if I sell and then buy to cover two strikes lower it makes it more worth it. Still a high probably of being a successful trade with the profits being lower than the loss but that ratio in the difference is better
thank you for this video, is there a way to reverse your trading strategy shown at 22:56 and somehow get avg p/l of +$1505 while risking biggest loss of $97 ?
That wouldn't work as the biggest loss was $1505 and the avg p/l was $97, which means if you reversed the strategy and bought the put spreads, your average loss would be $97 and the biggest profit would be $1505.
this is hands down the most valuable options channel on youtube. that being said, considering your hypothetical portfolio, wouldn’t it just be better to long SPY for 10 years for 200% return instead of shorting put credit spreads? could you possibly do some analysis of your most successful backtested strategies vs outperforming the market?
Thank you! The charts I made confused a lot of people. The starting value of the sized trade charts are not the amounts allocated to the trades. Only the specified percentage of the trade allocation is used in each trade. So if we have the $50K chart and 15% trade size, $7500 was used in the first trade ($42,500 in cash). And then 7.5% of the portfolio in each trade thereafter. So the strategy actually significantly outperformed SPY from a total return perspective, but not necessarily volatility. I will start including a sharpe ratio or something. In short: the total portfolio increased 100% while only using a small percentage of the portfolio for each trade. The rest was in cash or could be used for other trades / investments.
projectoption I love the video, but could all the remaining portfolio be used for other investments? Or would some of the portfolio have to be held in cash for collateral on the credit spreads?
Hello, would you be able to tell me what option database you are using / where to purchase it. I would like to do my own backtesting in python as well.
Thanks for sharing your work. You mentioned that you reviewed studies that shows that selling options in low volatilty (VIX) consistently produced better results. Would you be kind to share references or links to those studies? Kind regards.
If you're selling naked puts, couldn't you manage the downside risk with a stop loss instead of using a put credit spread? This would provide a significantly higher profits as you don't have to buy a put option to hedge the short put?
Chris simply amazing ! Your videos keeps getting better and better and deserve millions of views IMO best on the Internet period. Quick question based on your historical data , have you been assigned in any of your trades when your stop lost kicked in and I assumed ITM ? Also your strategy to take profits @75% before expiration therefore there were no assignment s? I have narrowed down to vertical credit spread as my strategy but still unsure how Mitigate assignment
wow one of the best investing videos I've seen! I'm really learning a lot. How would the credit spread strategy compare to others like Iron condors, the wheel, or others? Thanks so much for your content.
Chris - Thank you so much for this content. Amazing. Do you have any similar research or backtesting for any other strategies such as covered calls, iron condors or butterflies? would you please indicate the name of the videos? thank you so much and keep it up. Great work!!!
Hey Chris. Your studies are an awesome addition in contrast to the run of the mill youtube education I've been able to find. Pitching the honest truth about not getting rich overnight is much more realistic than what other channels offer. I look forward to more of your videos. Thanks again!
Chris, thank you for this and for all of the amazing videos on your channel. Do you happen to have a spreadsheet template to do this systematic trade? I'm trying to build my own but I'm not very good with Excel. Looking to have a spreadsheet to help figure out the stop loss and profit targets based on each trade. Thank you in advance!
Hi Chris, at 16:00 is the VIX you mention is CBOE Volatility S&P 500 Index? How to find it on the Tastyworks platform? Last question, how do you run backtest on the platform? I knew that TOS can do but not sure how to do it with Tastyworks. Thanks
Great back testing analysis. I wonder if you have back tested with ATM or one strike OTM with vertical call debit spreads for the same period using various stops as you have done with credit spreads on SPY?
Absolute best video iv seen on credit spread! Any idea if this strategy could be tweaked for weeklys? I would love the same kind of content for weeklys :) Great Work!
Thanks for the analysis Chris, but I do think that selling short put spread on individual large cap stocks can be much more profitable and of course, there is not specific day of the month to open a position, it depends on market conditions. It sounds like a good strategy after a big crash.
Awesome study, very interesting results. I guess this is a good strategy in a bullish market. Although it would be difficult to keep using it after an year of negative results, perhaps losses can be averted by not using the strategy in crisis or bearish market, if one can figure out that context. Then more questions: How did you make the backtest, are there some tools that can help automate such a backtest or provide history data? I would be very interested in doing such tests myself. And if it's better to sell spreads when lower volatility, what about the reverse side, is it better to buy spreads in higher volatility even though they would be more expensive?
Thanks for the great video, I really appreciate it but I have some questions : I read, that closing option trades by setting a stop loss is not preferred, since the trade will be closed, even if the strike isn't reached yet (e. g. by rising IV). I thought the long put at a lower price is meant to limit the loss, or am I wrong? The second question is, how you did the backtest? What software did you use or is this included in the tastyworks software? Anyway, great video(s)!
Hi Mike this was a fantastic video training and the most powerful strategy I just have a question can this strategy implement it with the SPX the same way you did with SPY without running into the risk of being assigned thank you
It’s Chris! Haha but yet you can do this in SPX. Same concept and there’s no assignment risk in SPX because SPX options cannot be exercised (they are cash settled). You wouldn’t have any assignment problems in SPY either because the rules would not allow your short put to be in the money with little extrinsic value.
Hi, great video. Let me ask you this, supposing you are in a SPY bull put with an original VIX level at 25%. If the VIX goes, say to 35% while you are in the trade, what would you do? a) Nothing, just follow your strategy b) close the trade. Thanks
Thanks for this. Really appreciate. I would really want you to test a strategy that involves choosing strike prices with 90% (or even higher) probability instead of 70%, and betting with more capital.
Good video; I’m beginning newb but it seems like your right; better not to sell fire insurance (puts) during a massive wildfire; yes the premiums are high but it’s not worth it. It’s better to increase position size in a less volatile underlying. This is an income strategy for me, not a casino
Great video, I believe in trading systems whole heartedly, removes a lot of the emotion involved which can be killer. Also glad to see your pacing isnt thru the roof as on some older vids 😂
And I definitely don’t mind spending half an hour to an hour (or even more) watching one fleshed out video that clearly explains the topic and definitely nails home the key points. Its much more efficient than having to watch 10 videos that are 10 minutes long to grab bits and pieces of info here and there.
Hahah, it actually is slightly unpredictable, but longer videos can do very well. My newest 3-hour video is performing the best out of any video on my channel thus far. People don't watch the whole thing, on average, but longer videos can get more potential watch time than shorter videos, which keeps them on YT longer. The algo definitely loves that!
Thanks for this great video! Could I get your advice about using a stop-loss with this strategy? Would you recommend placing a GTC stop? Market price or limit? ...I assume for the profit target it's easy enough to just place a GTC limit order.
Great video. But may i know how your calculate for - 150% stoploss? Base on price of SPY or Mark or Range of both strikes? Abit confused by your -150%. Thank you.
Nice video! One question: since you are using EOD price, the success rate will be lower in reality. There can be cases that the intraday price is lower than the EOD and it will hit the stop loss.
Very Interesting and strong point. I considered a counter argument being profit target might look different factoring in intraday pricing, but I believe you make a valid point, I'd be interested his thoughts. Cheers!
Chris, can you tell me which software you use to conduct your backtests? Also, in this more neutral market, are you either selling index iron condors, or what are your thoughts on how you select between put spreads and call spreads? Lastly, did you run your backtest with 5 point spreads (say, for when VIX was over 30). Thanks
Hi Steven! I use Python programs that I write to do these backtests. I have/maintain a historical options database that I use Python to filter through and simulate strategies/portfolios. For index trades, I typically do market-neutral trades such as butterflies. I am not doing these trades right now as it's my opinion that it's not the best environment due to the mass uncertainty that's still among us. I believe volatility is here to stay for some time, although it's calmed down significantly in recent weeks. I have not tested 5-point spreads, but it's a good idea for smaller traders.
Thanks for the video Chris. Do the 2 courses which you offer still work? I ask because they were written some time ago and if yes, which of them do you recommend?
This video is great. I am still practicing in a paper account. Do you know how I can get past option chain data to do some back testing before I start live trading this strategy?
I have a question about stoploss and spread. In most cases your stoploss is going to be hit before you hit the downside protection of the long put. Why buy the put at all then? You still will have the same slippage of an automatic market order anyway and it costs you premium.
If the SPY were to gap a large amount over night, the spread would protect you while the stop loss would just get you out at the next days opening price. Most of the time this won't happen, but it could cause a large loss.
A really great Backtest - so what kind of overall Performance with a 250k Portfolio could be possible on yearly basis on average - what is you experience (realistic) best case ;o) average??? I appreciate your feedback - what about allocate more then 15% or 25% or more? ...
Interesting ... but it barely outperforms buy and hold :/ I guess the main advantage is the low allocation. I wonder how beneficial a long call option would be
The idea that it barely outperformed buy and hold is invalid *because* of the same low allocation you speak of. The actual capital used to generate the results is much lower than had he bought in at once and held
Solid video buddy. I'm new to options, but have been trading equities for ~7 years. Positive expectancy is critical. I can already tell that when selling spreads at a win rate of 70/30 you need to aim for at least 65% maximum profit to stay above water (before commissions). I've seen a ton of arguments for 50% of max profit, but you'd have to tighten your losses which more than likely will cause your win rate to decline by not letting theta work in your favor. Am I understanding that correctly based on my analysis and your research?
You CAN use the same management tactics seen here for other strategies and stocks. But you should not assume the results will be the same. They will be very different, especially if trading individual stocks.
Very helpful video, thanks Chris. Can you please tell me what is the software/website you used here to backtesting and display the P/L growth chart from the last 12 years after you adjust the parameters?
I purchased historical option data that I keep in an AWS database. I use Python programs that I write to pull the appropriate data from the database and then simulate options strategies / analyze the data / create charts.
Hi Chris, just wondering how you would set up the stop-loss on the tastyworks platform? From what I can tell, it can only be done automatically for single-leg trades so would I have to monitor the market and trigger the stop-loss manually?
You do not want to use Stop Loss orders on options - I do not believe that Chris actually used them as executing a Stop Loss order would almost always get a very bad fill - meaning - it would not Stop at the actual loss price you set but would fill at market price which would be typically much worse. Use alerts to advise you when your loss price is reached and then manually buy back the spread
I have a historical options database stored in the cloud. I pull the necessary data into my programming environment using Python. Then, I use Python and its libraries (pandas, numpy, matplotlib) to analyze and visualize the data. It took a while to figure it out, but well worth it. I learned using Jose Portilla's classes on Udemy.
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✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf
This may be the single greatest option trading video of all time. Ive recently started selling put credit spreads and making consistent profit but I always wondered if there was data available on this strategy. You, sir, have provided exactly what I was looking for. I wish I could like this video 100 times.
Wow. I have consumed literally hundreds and hundreds of hours of option education content and this might be the most valuable half hour I have ever seen. Well done sir!
How is your option trades going so far?
@@parampreetsingh8768 Very well. And yours?
@@markmcnair5864 I just recently started, I have profited once, but it is kinda of scary. Plus is the spread minus the credit your true mas loss? or can you lose more on a dividend day or something? Because I have and option put credit spread contract for spy tomorrow which most likely will be profitable but just in case I do get excercised, do I pay them dividends too?
@@parampreetsingh8768 that formula is correct. Dividends should not come into play because you do not own any actual stock. Only the contract that allows you to buy/sell etc.
If trading causes concern, then definitely keep you max losses very low (maybe 1% of total account size or less) and continue to trade spreads for a while before writing any naked contracts.
@@markmcnair5864 All right thank you!
The strategy at 22:30 is what I do on a weekly time frame with 5% per trade, not the account. I've been averaging 3% a week. This is right on the money. Wish I saw this video before I started trading spreads.
Do you open the trade on Monday morning and expire Friday?
@@gavinng3898 I don't trade credit spreads anymore. My account has grown a lot since then and I only trade the wheel now.
Phenomenal analysis, this channel is the absolute best. I will definitely be trying this strategy going forward. 👍
22:36 - Credit Spread strategy with management.
Entry: VIX < 30
Exit: T+30
Profit: 75%
Stop-loss: -150%
Size: 5%
This guy is really good at explaining stock options. I've watched so many of his videos over about 2 months. I have learned so much. I recently started trading options and have done very well with his advice. I like in this video he says if those gains are not good enough for you I don't know what to say. Lol !!! It's true this is not a get rich quick thing. If you can get a 30% return or better in a short amount of time ( a week or a month) that is amazing. Anyway thank you for the videos. Your videos have helped me make a few extra bucks a month. I pray that God will bless you for all the people you are helping with your knowledge.
You definitely earned my sub for this vid. My mind is blown by the depth that you went into with your study. Amazing!
Wow! Chris, this is some amazingly useful information and a great demonstration of how the stop loss, profit target, and allocation size can affect profitability and draw downs. Thanks for the hard work putting this together!
What a great video to come across as I’m trying to get into credit spreads! An updated video of this content would be great. Thank you for the great content!
Hi Chris. This is a great video. Just a quick question: where did you access the option historical data for this back test? Thanks a lot!
Wow. This is great material. One missing piece that I am looking for is the trade-off between position size and spread width. How to compare wider spreads and less contracts vs narrower spreads and more contracts. For example, if I want my max loss to be less than $5000, then how do I decide among ten $5 wide spread, three $15 wide spread or one $50 wide spread? I know options are all about trade-off but I don't have a clear view now about the trade-off between these two choices.
Great question and I also had a similar question along those lines. Because this was asked 3 months ago, I was just wondering if you already come up with an answer for your question? If so could you briefly clarify it please or could you recommend any studying material that made you see the answer? Cheers mate
18:50 I recently watched your Iron Condor management video and the conclusion there was that VIX >23.5 yielded the best results. Why is it different here?
how do you monitor the credit spread price for stoploss/takeprofit intraday without staring at the screen all day? or is there a way to enter these orders/rules before hand in tastyworks?
Thanks for the video :)
Did you strictly select the deltas for all the trades you were talking about ? Those deltas really determine the probability of success ? What delta should we look for with higher Vix? Thanks again I love your videos
To avoid all bear phase, wt will be vol filter? I see 2015-16 was bearish phase, to avoid that, do we have other filter or vol is the only one?
Who did you use for all of your back testing? I've been looking for a good service to back test strategies like this.
Thanks for posting. Excellent. I requested this one in one of your previous video.
I have few questions.
1)Are you picking up 45 DTE but close the position at the end of 30 days whether is profit or loss?
2)Why 30 delta and 16 delta. Why not say start with X delta go 5 or 10 point wide. For SPX 30 delta/16 delta is too wide.
3)Based on 15% allocation to this strategy say you can enter 5 credit spreads. Are you entering all the 5 credit spreads all at once or it is better to stagger them may one per day or one per week.
Thanks again for great post. Hoping to hear from you.
1) Yes, the trades are closed at the end of the trading month (after about 30 days) because it was easier to ensure the same DTE at each trade entry. Also, I use time-based exits in my trades all the time, meaning I'll close after a certain amount of time has elapsed no matter if it's a winner or loser.
2) It was a happy medium between 16-delta / 10/5-delta spreads. The 30 delta / 16 delta had decent risk reward. If you went $5 - $10 wide on the spreads, the risk reward would be significantly worse, like 10:1 (you can lose 10x more than you can make). Due to the downside skew in SPY, we have to sell really wide put spreads to get good premiums.
3) All spreads were entered at once. You can certainly stagger your entries in real life.
Don't take this plan as fact. You can adjust it however you see fit. You can extract the management techniques in this video and apply them to your own strategies, but I'm not guaranteeing the results will be positive as the results in this video are strictly for the setup and rules.
@@projectfinance Thanks for taking your time to reply. Since you have used end of the day quotes stop losees may hurt more than whats the backtest says. Intraday vol spikes/sudden down moves may touch stop targets. Most of the times prices recovers.
Am I right?
The P/L 171/329 in the beginning of the video, the delta is 0.44 / 0.39. Do you consider them good choices? The P/L ratio looks tempting 1/2. Thanks
I'm new with put credit spread and never used stop loss for the two trades I made prior to watching this video. this video just got me a little confused after a while. I need help understanding this stop loss setting concept.
Hey Chris, thanks for this very comprehensive video. Much appreciated. You have indicated entering this particular trade when VIX is below 30, which is a useful and specific guideline. Both Option Alpha and your friends at Tasty Trade indicate that one should not sell options for any particular ETF or stock unless IVP or IVR is at least 50 and the higher the better. Your statement "Contrary to popular belief, lower implied volatility environments are very favorable for options-selling strategies, as realized market volatility is low." seems to contradict the other guys. I'm unsure how to interpret your statement for all other ETFs/stocks when selling options. What does "lower implied volatility environments" mean as that is a relative description vs what you indicated for the SPY trade described in the video (enter when VIX is below 30)? Can you quantify or be more specific in your guideline when selling options for other ETFs/stocks?
Great feedback and terrific question. I am surprised that there is no response.
I wonder how well rolling the spreads out will work when the trade moves against you as opposed to just eating the loss. For example, if a stock is over sold and is likely to recover, it would make more sense to roll the spread and take a small loss or even roll it for a credit if your lucky and just have the new spread expire worthless as the stock recovers. This way you can avoid taking massive losses when the decrease in the stock price isn't really justified or supported by any of the company's fundamentals.
Hello. I really enjoyed your video! Would you say that trading with a delta .30 strike is still a viable today? Thanks.
Very good research and concise. I wonder if the largest loss figure can be minimised if Calls credit spread was used instead of puts. Basically, maintain the same management/entry criteria, but alter the VIX entry to reflect the switch to Calls. My rationale here is the market tends to rise slowly but falls quickly hence the large drawdown with puts. Basically , the market has a nasty habit of using the stairs when going up and taking the elevator on the way down.
I’ve been looking for this video for a month now. And you just put it on here today. Good information.
Awesome! Thank you!
I like the strategy and analytics. I suggest the performance of the cumulative would be affected by yearly taxes. A typical marginal rate of 25% would change things a bit. I appreciate your work and have learned a good deal from it. Thank you much!
So, today is Nov 2nd, 2020, the first trading day of November. If i set up a 30/16 delta put spread and looking to exit on Nov 30. 2020. what expiration date should i go for? based on the strategy you discussed in the vieo
Thanks for another great instructional video Chris. Very well presented. I agree with selling put spreads when IV is low, because low IV indicates complacency and a possible crash. IV was low for months prior to March 2020. When IV is high though, Naked puts after sell offs should do well I think.
Awesome video Chris! Learned a lot just by watching your videos. Have some questions though, what's the rationale behind Selling -30 Delta and Buying -16 Delta? When you trade credit spreads is this the width that you normally use? Thanks again!
Is there a way to automate it or each trade needs to be set up manually?
Thanks for the video. Why did you choose the 16-delta long put vs using a tight spread like the 28-delta put? You can get more credit for the same capital at risk (albeit you have larger slippage costs). Also, why not allocate a larger portion of the portfolio-- say 25%-- since it would yield a higher return. I get that there could be some crazy event which totally wipes out your open spreads (like Black Monday), but there could be additions to the system to avoid huge events like that (say liquidate all positions if X happens).
Wonderful video! The plan appears sensible and easy to implement. Is it possible to know how it performed in 2021?
This is great! How do you backtest? Which tools do you use? Can you do a video on how to backtest a strategy?
This would be awesome and what requirements one needs to do backtests (live data etc.)
This is exactly what I'm looking for. I was very confused since spreads are only strategies and operating on them daily seems very stressful.
My question for you Chris:
What are the tools you used in this study? How did you setup a study like this? Where can I learn more of this kind of study? Thanks!
If I make my spread that wide it risk soo much more that the profit. But if I sell and then buy to cover two strikes lower it makes it more worth it. Still a high probably of being a successful trade with the profits being lower than the loss but that ratio in the difference is better
thank you for this video, is there a way to reverse your trading strategy shown at 22:56 and somehow get avg p/l of +$1505 while risking biggest loss of $97 ?
That wouldn't work as the biggest loss was $1505 and the avg p/l was $97, which means if you reversed the strategy and bought the put spreads, your average loss would be $97 and the biggest profit would be $1505.
Great video Chris. Highly informative. Thanks for producing.
this is hands down the most valuable options channel on youtube. that being said, considering your hypothetical portfolio, wouldn’t it just be better to long SPY for 10 years for 200% return instead of shorting put credit spreads?
could you possibly do some analysis of your most successful backtested strategies vs outperforming the market?
Thank you! The charts I made confused a lot of people. The starting value of the sized trade charts are not the amounts allocated to the trades. Only the specified percentage of the trade allocation is used in each trade. So if we have the $50K chart and 15% trade size, $7500 was used in the first trade ($42,500 in cash). And then 7.5% of the portfolio in each trade thereafter. So the strategy actually significantly outperformed SPY from a total return perspective, but not necessarily volatility. I will start including a sharpe ratio or something.
In short: the total portfolio increased 100% while only using a small percentage of the portfolio for each trade. The rest was in cash or could be used for other trades / investments.
projectoption I love the video, but could all the remaining portfolio be used for other investments? Or would some of the portfolio have to be held in cash for collateral on the credit spreads?
Good question!
@@projectfinance You mean "And then 15% of the portfolio in each trade thereafter," right?
Hello, would you be able to tell me what option database you are using / where to purchase it. I would like to do my own backtesting in python as well.
Thanks for sharing your work. You mentioned that you reviewed studies that shows that selling options in low volatilty (VIX) consistently produced better results. Would you be kind to share references or links to those studies? Kind regards.
If you're selling naked puts, couldn't you manage the downside risk with a stop loss instead of using a put credit spread? This would provide a significantly higher profits as you don't have to buy a put option to hedge the short put?
Chris simply amazing ! Your videos keeps getting better and better and deserve millions of views IMO best on the Internet period.
Quick question based on your historical data , have you been assigned in any of your trades when your stop lost kicked in and I assumed ITM ? Also your strategy to take profits @75% before expiration therefore there were no assignment s? I have narrowed down to vertical credit spread as my strategy but still unsure how Mitigate assignment
How did you get the max loss per put spread of 1,500? 20:37
wow one of the best investing videos I've seen! I'm really learning a lot.
How would the credit spread strategy compare to others like Iron condors, the wheel, or others?
Thanks so much for your content.
Chris - Thank you so much for this content. Amazing. Do you have any similar research or backtesting for any other strategies such as covered calls, iron condors or butterflies? would you please indicate the name of the videos? thank you so much and keep it up. Great work!!!
The math at 5:15 is wrong. Max loss should be (Spread width - Premium received) X 100. Without the brackets you are getting a very different number.
this is just comprehensive and helpful content!! THANK YOU FOR YOUR AMAZING WORK
Hey Chris. Your studies are an awesome addition in contrast to the run of the mill youtube education I've been able to find. Pitching the honest truth about not getting rich overnight is much more realistic than what other channels offer. I look forward to more of your videos. Thanks again!
Thanks Evan! I appreciate the comment. More videos like this to come.
Chris, thank you for this and for all of the amazing videos on your channel. Do you happen to have a spreadsheet template to do this systematic trade? I'm trying to build my own but I'm not very good with Excel. Looking to have a spreadsheet to help figure out the stop loss and profit targets based on each trade. Thank you in advance!
Hi Chris, at 16:00 is the VIX you mention is CBOE Volatility S&P 500 Index? How to find it on the Tastyworks platform?
Last question, how do you run backtest on the platform? I knew that TOS can do but not sure how to do it with Tastyworks. Thanks
Click on the ticker search box at the top of the platform and enter "VIX"
Great video. Where do you find the historic SPY option 30-delta and 16-delta prices to calculate all of this? Thanks! Again - great video.
Thinkorswim on demand
@projectoption Awesome video! Do you have any recommendations for a software I could use to do my own backtests?
Fantastic video. Thanks for sharing such insightful information. Keep up the great work!
Great back testing analysis. I wonder if you have back tested with ATM or one strike OTM with vertical call debit spreads for the same period using various stops as you have done with credit spreads on SPY?
Absolute best video iv seen on credit spread! Any idea if this strategy could be tweaked for weeklys? I would love the same kind of content for weeklys :) Great Work!
I wonder if you can keep the -100% stop loss and re-enter the spread when the price recovers stability?
Thanks for the analysis Chris, but I do think that selling short put spread on individual large cap stocks can be much more profitable and of course, there is not specific day of the month to open a position, it depends on market conditions. It sounds like a good strategy after a big crash.
Awesome study, very interesting results. I guess this is a good strategy in a bullish market. Although it would be difficult to keep using it after an year of negative results, perhaps losses can be averted by not using the strategy in crisis or bearish market, if one can figure out that context.
Then more questions:
How did you make the backtest, are there some tools that can help automate such a backtest or provide history data? I would be very interested in doing such tests myself.
And if it's better to sell spreads when lower volatility, what about the reverse side, is it better to buy spreads in higher volatility even though they would be more expensive?
Thanks for the great video, I really appreciate it but I have some questions :
I read, that closing option trades by setting a stop loss is not preferred, since the trade will be closed, even if the strike isn't reached yet (e. g. by rising IV). I thought the long put at a lower price is meant to limit the loss, or am I wrong?
The second question is, how you did the backtest? What software did you use or is this included in the tastyworks software?
Anyway, great video(s)!
Hi Mike this was a fantastic video training and the most powerful strategy I just have a question can this strategy implement it with the SPX the same way you did with SPY without running into the risk of being assigned thank you
It’s Chris! Haha but yet you can do this in SPX. Same concept and there’s no assignment risk in SPX because SPX options cannot be exercised (they are cash settled). You wouldn’t have any assignment problems in SPY either because the rules would not allow your short put to be in the money with little extrinsic value.
projectopti oh thank you Chris I appreciate for your quick response thank you very much
Have you tested this with QQQ (instead of SPY) and VXN (instead of VIX) ?
Great very informative video! It would be helpful to show the total profits and losses for each strategy you discussed. Thanks..
Hi, great video. Let me ask you this, supposing you are in a SPY bull put with an original VIX level at 25%. If the VIX goes, say to 35% while you are in the trade, what would you do? a) Nothing, just follow your strategy b) close the trade. Thanks
Thank you Chris. Very valuable info and I will certainly implement what I learned from this video
Thanks for this. Really appreciate. I would really want you to test a strategy that involves choosing strike prices with 90% (or even higher) probability instead of 70%, and betting with more capital.
Would you mind posting a video on margin, how it is calculated, how it is collected, margin calls, etc please?
Good video; I’m beginning newb but it seems like your right; better not to sell fire insurance (puts) during a massive wildfire; yes the premiums are high but it’s not worth it. It’s better to increase position size in a less volatile underlying. This is an income strategy for me, not a casino
Great video, I believe in trading systems whole heartedly, removes a lot of the emotion involved which can be killer. Also glad to see your pacing isnt thru the roof as on some older vids 😂
And I definitely don’t mind spending half an hour to an hour (or even more) watching one fleshed out video that clearly explains the topic and definitely nails home the key points. Its much more efficient than having to watch 10 videos that are 10 minutes long to grab bits and pieces of info here and there.
Altho im sure youtube algo loves that 😭
Hahah, it actually is slightly unpredictable, but longer videos can do very well. My newest 3-hour video is performing the best out of any video on my channel thus far. People don't watch the whole thing, on average, but longer videos can get more potential watch time than shorter videos, which keeps them on YT longer. The algo definitely loves that!
What about gamma and closing positon 21 days before expiration? Have you looked into those stats?
Thanks for this great video! Could I get your advice about using a stop-loss with this strategy? Would you recommend placing a GTC stop? Market price or limit? ...I assume for the profit target it's easy enough to just place a GTC limit order.
i'd be curious how all this would differ if you used weekly options
Great video. But may i know how your calculate for - 150% stoploss? Base on price of SPY or Mark or Range of both strikes? Abit confused by your -150%. Thank you.
Man, this is excellent!
thank for wake me up
The whole channel is purely GOLDDDDDDDDDDD
Thank you!
Nice video! One question: since you are using EOD price, the success rate will be lower in reality. There can be cases that the intraday price is lower than the EOD and it will hit the stop loss.
Very Interesting and strong point. I considered a counter argument being profit target might look different factoring in intraday pricing, but I believe you make a valid point, I'd be interested his thoughts. Cheers!
Chris, can you tell me which software you use to conduct your backtests? Also, in this more neutral market, are you either selling index iron condors, or what are your thoughts on how you select between put spreads and call spreads? Lastly, did you run your backtest with 5 point spreads (say, for when VIX was over 30). Thanks
Hi Steven! I use Python programs that I write to do these backtests. I have/maintain a historical options database that I use Python to filter through and simulate strategies/portfolios. For index trades, I typically do market-neutral trades such as butterflies. I am not doing these trades right now as it's my opinion that it's not the best environment due to the mass uncertainty that's still among us. I believe volatility is here to stay for some time, although it's calmed down significantly in recent weeks.
I have not tested 5-point spreads, but it's a good idea for smaller traders.
Thanks for the video Chris. Do the 2 courses which you offer still work? I ask because they were written some time ago and if yes, which of them do you recommend?
This video is great. I am still practicing in a paper account. Do you know how I can get past option chain data to do some back testing before I start live trading this strategy?
Use Thinkorswim Thinkback function
I have a question about stoploss and spread. In most cases your stoploss is going to be hit before you hit the downside protection of the long put. Why buy the put at all then? You still will have the same slippage of an automatic market order anyway and it costs you premium.
@projectoption really hoping you could give me some insight on this. thanks
If the SPY were to gap a large amount over night, the spread would protect you while the stop loss would just get you out at the next days opening price. Most of the time this won't happen, but it could cause a large loss.
How are you testing your strategies? which soft do you use?
A really great Backtest - so what kind of overall Performance with a 250k Portfolio could be possible on yearly basis on average - what is you experience (realistic) best case ;o) average??? I appreciate your feedback - what about allocate more then 15% or 25% or more? ...
Interesting ... but it barely outperforms buy and hold :/ I guess the main advantage is the low allocation. I wonder how beneficial a long call option would be
The idea that it barely outperformed buy and hold is invalid *because* of the same low allocation you speak of. The actual capital used to generate the results is much lower than had he bought in at once and held
Hi projectoption! What API do you use to get historical option price data?
Solid video buddy. I'm new to options, but have been trading equities for ~7 years. Positive expectancy is critical. I can already tell that when selling spreads at a win rate of 70/30 you need to aim for at least 65% maximum profit to stay above water (before commissions).
I've seen a ton of arguments for 50% of max profit, but you'd have to tighten your losses which more than likely will cause your win rate to decline by not letting theta work in your favor.
Am I understanding that correctly based on my analysis and your research?
1. Can we use the same system to other strategies? i.e. Iron condor, Bear call spread, etc.
2. Is it work with any other tickers?
You CAN use the same management tactics seen here for other strategies and stocks. But you should not assume the results will be the same. They will be very different, especially if trading individual stocks.
@@projectfinance Thanks a lot
Great video! Do you have results for 16 delta short and 6 delta long or other strategy?
what opt strategy do you like in this rel high vix market heading forward?
hi ProjectOption, will you close trade u mentioned in video if VIX suddenly above 30?
Have u done test with against high IV environment to have a comparison as a benchmark?
What about selling put spreads during low VIX and call spreads during high VIX?
Hi, what are you using to backtest?
Very helpful video, thanks Chris. Can you please tell me what is the software/website you used here to backtesting and display the P/L growth chart from the last 12 years after you adjust the parameters?
I purchased historical option data that I keep in an AWS database. I use Python programs that I write to pull the appropriate data from the database and then simulate options strategies / analyze the data / create charts.
@@projectfinance 👍👍👍
It would be interesting to see the results from other deltas i.e. 20%, 10%
Great content and top notch presentation.
Hi Chris, just wondering how you would set up the stop-loss on the tastyworks platform? From what I can tell, it can only be done automatically for single-leg trades so would I have to monitor the market and trigger the stop-loss manually?
You do not want to use Stop Loss orders on options - I do not believe that Chris actually used them as executing a Stop Loss order would almost always get a very bad fill - meaning - it would not Stop at the actual loss price you set but would fill at market price which would be typically much worse. Use alerts to advise you when your loss price is reached and then manually buy back the spread
Can you explain how the collateral works on a credit spread with the etf and if you lose are you always losing your max collateral or just a portion
Great content! Question which backtesting software do you use?
Thank you so much for a high-value content.
How did you run this simulation? Any suggested tool or backtest data? Please advise.
I have a historical options database stored in the cloud. I pull the necessary data into my programming environment using Python. Then, I use Python and its libraries (pandas, numpy, matplotlib) to analyze and visualize the data. It took a while to figure it out, but well worth it. I learned using Jose Portilla's classes on Udemy.
@@projectfinance Wow, thanks so much for the quick response. Appreciate! 😄
@@projectfinance Jose Portilla is a great teacher. I heard that he contracted covid virus. Hope he is better now.
Would this strategy be applicable to the QQQs?
How do you do your backtesting? Would love to use this to backtest similar strategies with different variables!
I have a historical options database and I write Python programs to analyze through the data and visualize the results.
@@projectfinance do you use your programming skills to enter trades automatically based on predefined rules or do you enter trades manually? Why?
@@projectfinance What database do you use / where can I get it? I would also like to backtest with python
@@projectfinance
Did you do same back test on selling call credit spreads ?