Tom, excellent remake of how you trade strangles. Since I've adopted strangles into my personal trading plan I've been steadily pulling in consistent income, THANK YOU for sharing this strategy!
Thanks for sharing your strategy with entry & exit rules, winning probabilities in a simple and easy to understand format! Please continue to share all these great income strategies and happy trading!
at 41:30 I think it would be good to consider the estimated ratio of wins to losses: $1000(0.9) - $4000(0.1) = $500, which is still very good. Otherwise the reported estimates are for 100% wins, which I know you do not intend to advocate. You reiterate in spoken words that some trades will lose, but I think it would be helpful to include those loss estimates in the written text as well. It makes a difference of -50% in estimated ROC.
If he's closing losers at 2 x credit received, that would be $1000(0.9) - $3000(0.1) = $600, if I'm not mistaken. But, I agree with your point, the expectation would be good to put into the slides explicitly. This is not a bad number, so no need to hide it, in any case. What worries me, is that in a rapid move, you won't get out at the 2x loss target. I'm still struggling to get comfortable with the idea of selling naked options.
@@NorthAtlanticDrifter thank you for your comment. My expectancy calculations were based on 2 lots because that is the number he expected to close per month, for direct comparison with his claim of $1000 income per month. For a single lot with $1000 initial credit, the profit target would be $500 (see 26:29), and the intended max loss would be $2000, having estimated expectancy of: ($500)(0.9) - ($2000)(0.1) = $250. The value entered for a stop loss order would be a $3000 debit, yielding a 2x net loss of -$2000 after adding the initial credit +$1000 to the closing debit -$3000. I believe this is correct, but I would be grateful to know if I made any errors.
@@randyhibshman3682 Ah, I see. I hadn't realized you were calculating for the expected 50% gain of a 2-lot. I think your calculation is indeed correct!
12:00 Check Tasty’s data, but selling premium at higher vol yields less risk. Counterintuitive, but the credit is bigger and volatility is mean reverting.
very good simple plan, like that you pushed out from 45 DTE to 90 DTE, I've adjusted to selling lower deltas, i never roll either love your saying "rolling is losing" i always close losers and now pushing out in time to avoid that GAMA, thanks for what your doing.
Like the video. I'd love to hear why higher open interest on a strike near the delta you are looking at is desirable. More liquid? Smaller bid/ask spread? Liked and subscribed.
I'd love a video where you dive deeper into WHY this strategy works. Maybe some statistics you have discovered from doing this. What's the mechanism. No backtesting available of course, but maybe if there is variance risk premium, and how your exit mechanics (50% profit, 3x loss target) tips the statistical odds in our favor. Cheers from Norway!
Good video. I have seen backtest studies going back 20 years on every single transaction both on stopping the trade out at "x" vs. letting it play out to expiration. The results were that putting stop losses on the trades showed a much lower profitablity than letting the probability play out. I'm sure your system works for you and am interested in knowing your opinion.
Tom, Thanks for sharing your strategy, I have a question, what will you do when only 20 DTE left, but the strangle does not earn 50% credit? thank you very much
On Tastytrade research on strangle outlier risk, for a 16 delta strangle at IV of less than 20, the probablity of of loss exceeding BPR is 0.1%. Given that the trade idea is base on 6/7 delta, the probability of loss exceeding BPR should be even lower. If i am taking on this trades,i would be using BPR as the stoploss. But that is just me.
Do you have a link to that TAstytrade video? BPR changes though as underlying gets closer to your strikes. Are you talking about BPR at the time of entry as your stop loss?
You are slowly becoming my favorite channel on youtube, I'm super thankful that you've started posted videos here Tom. You mentioned your max loss is 2% of your net liq. Does that mean you always roll a losing position once the loss hits 2% of your net liq? Or do you just take the loss and dont initiate a new position until you see another better setup? Thanks.
Great video Tom. I have a question though: Why not take off individual legs? If one of the legs hits a profit target, one could take it off, hopefully see the mean reversion and overshoot on the price movement, and take off the other side.
Thanks Tom. You mentioned if someone has portfolio margin they might be better off trading SPX. Is that because the buying power for SPX isn't as big of a hit on portfolio as it would be on a regular margin account?
I don't see rolling as losing, I see it as a refusal to accept that you're losing. There's no discount for rolling compared to selling and buying whatever you want. Why allow what you're selling to effect what you buy next?
Hi Tom, I'm learning a ton from your channel. Currently binge watching all your videos. Thank you for making all the content! I'd like to just clarify one point from the video about the 3X stop loss: say you received 1000 credit, you would stop out when your strangle's value says -$3000 since that would be a 2X max loss?
@@TommKing13 on the first instance where it reach 3000? Wouldn't that stop out way more trade than necessary? Vol expansion / prob of touch etc can all lead to that. Or is that a quick and dirty(clean?) Way of saying: I was conservative enough on entry, if this still ran against me, it is unlikely to be salvageable and better safe than sorry?
For a simple reverse strangle strategy you have way too many indicators on your chart. In fact it is hard to see the price, barely visible. Are you sure you need all that...
Amazing strategy sharing Tom. Have been trading options on stocks but after watching this video will start selling strangles on Futures options. Have you ever considered Short Straddles on Option futures also. Any comments from your personal expeience. Thanks so much. Loved the video. Will watch it again so I can place a trade this week itself.
You showed which future you took. Thank you for that. But for me it would be much more interesting to know why you didn't take the other Future. What reasons did they kick out?
Tom, great work on this. If you get assigned what does your strategy evolve into? Do you start selling covered calls on your position until the contract is called away if ITM?
He’s using margin. No assignment. You lose the money you used as buying power. But usually the broker will liquidate the trade before it’s gets to the full amount. He also stated that he’s rolling into the next week. Look up how to defend strangles. tastylive has good videos.
Hi Tom can I ask exactly what your indicator settings are as can't tell from the screenshot ? I want to ensure I'm looking at the exact same for Bollinger bands and ATR. Thanks
You can also buy cheap wings (a long call/ a long put) far away from the short call / short put to define the risk. Costs a bit to do it but should allow you to trade in an IRA.
Thank you for your time putting together this video. I have been considering starting futures options. I want to start small and I like your strategy being more on the conservative side because it's options on futures; and futures are crazy. I have experience trading Iron Condors and some experience trading iron butterflies. I have shied away from undefined risk strategies. I'm ok with being stopped out since the potential returns are so high though. Have you done any trials with legging out of trades? I know you said you don't like to roll trades since it won't be nearly the same trade you started with, which I agree with. I'm thinking that if a side is getting tested it might be prudent to just take off the untested side so you can hit close to your original profit target faster if the underlying does go back in your favor? (just adjust profit target minus the cost of taking off the untested side)? What are your thoughts on this?
I too tried to figure out how to add the 3 ATR. Found ATR, set it to 3 but I just get a single line, not something that looks like bollinger bands. Anyone have a clue?
Hi Tom, awesome strategy and methods - I trade very similar in my channel. Question for you - in TOS - I have same setup but its 7.5k BPR which is a little rich for me - granted this is 10 delta - but just wondering does our friends Tom and Tony over as Tasty give you getter BPR? I would think BPR is same essentially across all platforms. I must me missing something. Maybe you already have something on making it "effective" lower?
Hi Tom, my math for your strangles doesn't add up. Can you show me where I'm wrong? A losing strangle wipes out the gains of the previous 4 won strangles (really 5 trades total). To simplify if you put 10 strangles on a year all on the ES with a 90% win rate, $1275 credit on $3321 BP, you would collect 9x$1275x.5 = $5737.5. On the 10th trade you lose $1275*2= $2550 for a net gain of $3187.5 on $32360 in buying power for a 9.99% return. What am I missing? It seems like this is impractical on the ES considering you also want to use only 50% of your buying power so you have to keep double the reserves in the account meaning the true return is about 5%. If you happen to suffer 2 losses instead of 1 then your return is 0%.
Using such low deltas it’s hard to imagine losing except a black swan event. Can’t you just keep it to expiration as long as it stays within the strikes?
You only have one trade on at a time. You would only need 3321 for each trade, not 33210 for 10 trades unless you took all 10 at one time. Not an options guru but I think this math is correct.
You can also exit sooner or use a tighter stop loss. My plan is to offset them with long strangles on SPY, which should also make a nice profit if done correctly.
You don't have to trade everything just because you see it. Better strat is to wait for opportunities. Wait for a lift in price on high volatility and then take a bite maybe.
the downside of the strategy is if there is a black swan and the market open gap down, your stop loss will be more than 2x.. also 10% ROC/month is not big if you calculate it based on BP(Buying Power) because it's highly leverage, one big drop beyond your strike price can wipe your entire account, it is rare.. but try back testing it during covid
Im so confused, how does a black swan event wipe out his account? His max loss 2% allocation to the trade would be stopped out regardless of black swan or not. And with 90 DTE trade you just roll it out, nobodys going to exercise with that much ext value
@@Bigace39. There is no guarantee a stop loss will get filled in a very fast move, or when the market gaps up or down. Futures can gap too, over the weekend. The risk is remote, but it is not negligible.
I use strangles in high volatility when the opportunity arises. However, have learned that trading them before earnings is folly. You are just asking to be annihilated. Futures options are good for me, can still take a beating, but in high volatility it's less likely, and even if you do, contraction can always be a nice bandaid.
Hi Tom. Thanks for your video! Amazing one. Quick question. As you know fidelity does not allow futures. I would like to implement your strangle strategy for spy options. I would love to get your input on this. Is it doable? Any pros or cons? Thanks!
The problem with selling naked puts/calls on SPY (or any other ETF's) is that the margin requirement (and reduction in buying power) is MUCH higher. Futures uses "span margin", which allows you to use your capital much better. You CAN get a "portfolio margin" account that uses "span" for ETF's, but you'll need to maintain at least 150K in the account. But if you can't do that, one way to lower the margin requirements for selling SPY options... is to buy a very very cheap call/put even further out of the money than the one you are selling. So technically, you would be selling two credit spreads, instead of selling naked... losing a little of the credit, but making up for it in buying power.
Thank you for the share. I wonder at 8:32 talking about size: max= 2% of net liq. When you choose the size according to this, what is usually the corresponding BPR/neq liq? I feel like with a 500k account, if I sell /nq strangle at 7 delta put and 6 delta call and collecting around 5k credit. Then it is using 38k BPR, which is like 7.6% of net liq. Does these number make sense to you, or they are completely out of chart?
I was confused like you initially. If the strangle's max profit is $500 and you exit at 50% or $250 and the net liqudity risk is $2500, you are making 10% for 90DTE which work out to be around 3% per month.
@@russellxuebut only on the capital used, still doesn't add up to 3% on the whole account unless you're using 100% BP at all times, which he said he only uses 50% at a time.
with a sizing requirement of 2% of Net Liq, are you not tempted to use some of that massive remaining amount of buying power in the account on some other trades? Seems like most of your account is inactive during this one trade. Perhaps the money can be in a money market account, so at least it is generating some return each month? I am assuming the 3% a month you aim for is on the capital in use and not on the entire account?
@@TommKing13 this might true but not at 50% of credit. This can only happen if 30 days out the actual price of the underlying was exactly in the same place when put on. To say there would be not delta component for or against, and you would benefit from Theta and Vol crush if any. Hey not trying to be a pain, just trying to manage expectations of other listeners. I like your video.
@@TommKing13 Hi there, thanks for your great video, very thought provoking. This was my question too which was for a 90 DTE strangle, on average are you seeing a 50% profit target around the 30-day mark? Or does 50% tend to materialize around 60ish days into the trade? So far all of my trades using your plan have immediately slammed red and stayed there for at least 30 days so far. I haven't closed any yet, and price hasn't come close to breaching any of my strikes, yet the trades have slammed red and theta doesn't seem to be kicking in (IV was also high when opened). I'm guessing I just need to wait closer to 90 days in order to start getting some relief.
Selling naked PUTS??? What is Tasty’s account requirement for this? E*Trade requires $500,000! Fidelity wouldn’t let me put in on either. Might want to disclose many brokers won’t even let you do this setup.
Thanks Tom..! Why would you not roll the untested side to lock in profit? Would that not be similar to rolling short put of the PDS of LT112 trade to lock in additional credit?
Thank you for this video! I’m new and learning. If you win the first 9 trades at say $500 each (total of $4500), and say trade #10 loses, wouldn’t you lose half of your profit just like that?
Tom, excellent remake of how you trade strangles. Since I've adopted strangles into my personal trading plan I've been steadily pulling in consistent income, THANK YOU for sharing this strategy!
Your BP will adjust based on the underlying.
Thanks for sharing your strategy with entry & exit rules, winning probabilities in a simple and easy to understand format! Please continue to share all these great income strategies and happy trading!
at 41:30 I think it would be good to consider the estimated ratio of wins to losses: $1000(0.9) - $4000(0.1) = $500, which is still very good. Otherwise the reported estimates are for 100% wins, which I know you do not intend to advocate. You reiterate in spoken words that some trades will lose, but I think it would be helpful to include those loss estimates in the written text as well. It makes a difference of -50% in estimated ROC.
If he's closing losers at 2 x credit received, that would be $1000(0.9) - $3000(0.1) = $600, if I'm not mistaken. But, I agree with your point, the expectation would be good to put into the slides explicitly. This is not a bad number, so no need to hide it, in any case. What worries me, is that in a rapid move, you won't get out at the 2x loss target. I'm still struggling to get comfortable with the idea of selling naked options.
@@NorthAtlanticDrifter thank you for your comment. My expectancy calculations were based on 2 lots because that is the number he expected to close per month, for direct comparison with his claim of $1000 income per month. For a single lot with $1000 initial credit, the profit target would be $500 (see 26:29), and the intended max loss would be $2000, having estimated expectancy of: ($500)(0.9) - ($2000)(0.1) = $250. The value entered for a stop loss order would be a $3000 debit, yielding a 2x net loss of -$2000 after adding the initial credit +$1000 to the closing debit -$3000. I believe this is correct, but I would be grateful to know if I made any errors.
@@randyhibshman3682 Ah, I see. I hadn't realized you were calculating for the expected 50% gain of a 2-lot. I think your calculation is indeed correct!
I am not sure the POP only taking 1 leg is correct. In a 10 delta strangle the probability that both options expire OTM is 81% (0.9x0.9)
12:00 Check Tasty’s data, but selling premium at higher vol yields less risk. Counterintuitive, but the credit is bigger and volatility is mean reverting.
very good simple plan, like that you pushed out from 45 DTE to 90 DTE, I've adjusted to selling lower deltas, i never roll either love your saying "rolling is losing" i always close losers and now pushing out in time to avoid that GAMA, thanks for what your doing.
Hey Tom, brilliant explanation. What delta will you choose for these on SPY or stocks? thanks
Like the video. I'd love to hear why higher open interest on a strike near the delta you are looking at is desirable. More liquid? Smaller bid/ask spread? Liked and subscribed.
Awesome Sir ❤ you video is amazing. Thanks for sharing your knowledge with us
I'd love a video where you dive deeper into WHY this strategy works. Maybe some statistics you have discovered from doing this.
What's the mechanism. No backtesting available of course, but maybe if there is variance risk premium, and how your exit mechanics (50% profit, 3x loss target) tips the statistical odds in our favor.
Cheers from Norway!
So you are OK taking assignment of 1000 barrels of crude oil or 40 head of cattle? Where would you store it?
I didn't there was anyone else crazy enough to do this apart from me, our strategies are very similar, just subscribed!
Good video. I have seen backtest studies going back 20 years on every single transaction both on stopping the trade out at "x" vs. letting it play out to expiration. The results were that putting stop losses on the trades showed a much lower profitablity than letting the probability play out. I'm sure your system works for you and am interested in knowing your opinion.
Tom, Thanks for sharing your strategy, I have a question, what will you do when only 20 DTE left, but the strangle does not earn 50% credit? thank you very much
On Tastytrade research on strangle outlier risk, for a 16 delta strangle at IV of less than 20, the probablity of of loss exceeding BPR is 0.1%. Given that the trade idea is base on 6/7 delta, the probability of loss exceeding BPR should be even lower. If i am taking on this trades,i would be using BPR as the stoploss. But that is just me.
Do you have a link to that TAstytrade video? BPR changes though as underlying gets closer to your strikes. Are you talking about BPR at the time of entry as your stop loss?
Ho lee fook - izzere a chart underneath all that crayon spaghetti - Jackson Pollock would've been jealous!
Great production. Much appreciated. Thank you.
Awesome video on how to strangle. I like this strategy and roi. Thanks Tom. ❤
You are slowly becoming my favorite channel on youtube, I'm super thankful that you've started posted videos here Tom. You mentioned your max loss is 2% of your net liq. Does that mean you always roll a losing position once the loss hits 2% of your net liq? Or do you just take the loss and dont initiate a new position until you see another better setup? Thanks.
Should have waited to watch the whole video before asking the question lol. You answered it in your trade exit slide. Thanks Tom.
Never roll. Just take the loss and move on!
@@TommKing13 Thank you sir.
Why not buy a call and a put further from the money and cap the risk, VS doing naked
Because then he would have to title it How I Trade Iron Condors😉
You can do that but you will lower your overall return and it doesnt change your win rate
Great video Tom. I have a question though: Why not take off individual legs? If one of the legs hits a profit target, one could take it off, hopefully see the mean reversion and overshoot on the price movement, and take off the other side.
Tom King is the KING. Thank you for all your videos.
Tom, really good video. I really like very much our information.
How did it go from november 2023 to mid-feb 2024, are you able to share stats?
Thanks
Thanks Tom. You mentioned if someone has portfolio margin they might be better off trading SPX. Is that because the buying power for SPX isn't as big of a hit on portfolio as it would be on a regular margin account?
These videos have been amazing Tom. Thank you so much for sharing🙏
I don't see rolling as losing, I see it as a refusal to accept that you're losing. There's no discount for rolling compared to selling and buying whatever you want. Why allow what you're selling to effect what you buy next?
Hi Tom, I'm learning a ton from your channel. Currently binge watching all your videos. Thank you for making all the content! I'd like to just clarify one point from the video about the 3X stop loss: say you received 1000 credit, you would stop out when your strangle's value says -$3000 since that would be a 2X max loss?
That is correct
Yes, exactly
@@TommKing13 on the first instance where it reach 3000? Wouldn't that stop out way more trade than necessary? Vol expansion / prob of touch etc can all lead to that.
Or is that a quick and dirty(clean?) Way of saying: I was conservative enough on entry, if this still ran against me, it is unlikely to be salvageable and better safe than sorry?
Can you please explain the extra factors that brought your return up to 80% instead of the nom 3%. Is there an extra technique that we can look for?
Another great video, thanks for sharing your wealth of knowledge.
Hi, great video. I don't undesrtand how the 3 ATR Bollinger Band are plotted on the chart
Tom , thanks great video. Much appreciated.
My BPR is way higher at the ROC slide, what am i missing please?
For a simple reverse strangle strategy you have way too many indicators on your chart. In fact it is hard to see the price, barely visible. Are you sure you need all that...
Just found your channel. New sub! Great content.
Tom, love your videos, thank you for the great material!! do you set your stop losses right after sending the trade?
I cant set stops on futures, so I monitor.
Amazing strategy sharing Tom. Have been trading options on stocks but after watching this video will start selling strangles on Futures options. Have you ever considered Short Straddles on Option futures also. Any comments from your personal expeience. Thanks so much. Loved the video. Will watch it again so I can place a trade this week itself.
You showed which future you took. Thank you for that. But for me it would be much more interesting to know why you didn't take the other Future. What reasons did they kick out?
Great but the low Buyingpower on the tradestart will increase over time automatically ...at least in germany :-)
Tom, great work on this. If you get assigned what does your strategy evolve into? Do you start selling covered calls on your position until the contract is called away if ITM?
He’s using margin. No assignment. You lose the money you used as buying power. But usually the broker will liquidate the trade before it’s gets to the full amount. He also stated that he’s rolling into the next week. Look up how to defend strangles. tastylive has good videos.
Hi Tom can I ask exactly what your indicator settings are as can't tell from the screenshot ? I want to ensure I'm looking at the exact same for Bollinger bands and ATR. Thanks
What's your opinion on just doing it on SPY?
Does anyone know what is the 3 ATR band he is referring to?
Thanks, I’d like to try strangles, but I trade a Roth IRA. Any ideas for a work around?
Tasty Trade
You can also buy cheap wings (a long call/ a long put) far away from the short call / short put to define the risk. Costs a bit to do it but should allow you to trade in an IRA.
thank you; very thorough
Thank you for your time putting together this video. I have been considering starting futures options. I want to start small and I like your strategy being more on the conservative side because it's options on futures; and futures are crazy.
I have experience trading Iron Condors and some experience trading iron butterflies. I have shied away from undefined risk strategies. I'm ok with being stopped out since the potential returns are so high though.
Have you done any trials with legging out of trades? I know you said you don't like to roll trades since it won't be nearly the same trade you started with, which I agree with. I'm thinking that if a side is getting tested it might be prudent to just take off the untested side so you can hit close to your original profit target faster if the underlying does go back in your favor? (just adjust profit target minus the cost of taking off the untested side)? What are your thoughts on this?
Hi Tom, great video, if you are doing a strangle on the /ES, what do you consider high volatility to be?
Hi Tom, Great tutorials!! What is the 3 ATR? Not finding it on TOS. Thx
I too tried to figure out how to add the 3 ATR. Found ATR, set it to 3 but I just get a single line, not something that looks like bollinger bands. Anyone have a clue?
Exceptional content!
Hi Tom, awesome strategy and methods - I trade very similar in my channel. Question for you - in TOS - I have same setup but its 7.5k BPR which is a little rich for me - granted this is 10 delta - but just wondering does our friends Tom and Tony over as Tasty give you getter BPR? I would think BPR is same essentially across all platforms. I must me missing something. Maybe you already have something on making it "effective" lower?
Same question here on ibkr bpr, I worried what happened if one side got challenged
Hi Tom, my math for your strangles doesn't add up. Can you show me where I'm wrong?
A losing strangle wipes out the gains of the previous 4 won strangles (really 5 trades total). To simplify if you put 10 strangles on a year all on the ES with a 90% win rate, $1275 credit on $3321 BP, you would collect 9x$1275x.5 = $5737.5. On the 10th trade you lose $1275*2= $2550 for a net gain of $3187.5 on $32360 in buying power for a 9.99% return.
What am I missing? It seems like this is impractical on the ES considering you also want to use only 50% of your buying power so you have to keep double the reserves in the account meaning the true return is about 5%. If you happen to suffer 2 losses instead of 1 then your return is 0%.
Using such low deltas it’s hard to imagine losing except a black swan event. Can’t you just keep it to expiration as long as it stays within the strikes?
You only have one trade on at a time. You would only need 3321 for each trade, not 33210 for 10 trades unless you took all 10 at one time. Not an options guru but I think this math is correct.
You can also exit sooner or use a tighter stop loss. My plan is to offset them with long strangles on SPY, which should also make a nice profit if done correctly.
Thanks @TommKing13! I see you wisely diversify your future underlying, Do you normally put on all 4 at once or put 1 on every week?
You don't have to trade everything just because you see it. Better strat is to wait for opportunities. Wait for a lift in price on high volatility and then take a bite maybe.
the downside of the strategy is if there is a black swan and the market open gap down, your stop loss will be more than 2x.. also 10% ROC/month is not big if you calculate it based on BP(Buying Power) because it's highly leverage, one big drop beyond your strike price can wipe your entire account, it is rare.. but try back testing it during covid
Im so confused, how does a black swan event wipe out his account? His max loss 2% allocation to the trade would be stopped out regardless of black swan or not. And with 90 DTE trade you just roll it out, nobodys going to exercise with that much ext value
@@Bigace39. There is no guarantee a stop loss will get filled in a very fast move, or when the market gaps up or down. Futures can gap too, over the weekend. The risk is remote, but it is not negligible.
I use strangles in high volatility when the opportunity arises. However, have learned that trading them before earnings is folly. You are just asking to be annihilated. Futures options are good for me, can still take a beating, but in high volatility it's less likely, and even if you do, contraction can always be a nice bandaid.
Hi Tom. Thanks for your video! Amazing one. Quick question. As you know fidelity does not allow futures. I would like to implement your strangle strategy for spy options. I would love to get your input on this. Is it doable? Any pros or cons? Thanks!
The problem with selling naked puts/calls on SPY (or any other ETF's) is that the margin requirement (and reduction in buying power) is MUCH higher. Futures uses "span margin", which allows you to use your capital much better.
You CAN get a "portfolio margin" account that uses "span" for ETF's, but you'll need to maintain at least 150K in the account.
But if you can't do that, one way to lower the margin requirements for selling SPY options... is to buy a very very cheap call/put even further out of the money than the one you are selling. So technically, you would be selling two credit spreads, instead of selling naked... losing a little of the credit, but making up for it in buying power.
Thank you for the share. I wonder at 8:32 talking about size: max= 2% of net liq. When you choose the size according to this, what is usually the corresponding BPR/neq liq? I feel like with a 500k account, if I sell /nq strangle at 7 delta put and 6 delta call and collecting around 5k credit. Then it is using 38k BPR, which is like 7.6% of net liq. Does these number make sense to you, or they are completely out of chart?
1% net liq credit target (1/2 of 2% net liq risk) at 90dte to get 3% per month target? Did I miss something?
That's correct!
I was confused like you initially. If the strangle's max profit is $500 and you exit at 50% or $250 and the net liqudity risk is $2500, you are making 10% for 90DTE which work out to be around 3% per month.
@@russellxuebut only on the capital used, still doesn't add up to 3% on the whole account unless you're using 100% BP at all times, which he said he only uses 50% at a time.
Hi Tom, can the ROC be as good with a 7 -10 delta on the SPY? Thanks in advance!
Check out long straddles on SPY
are GTC stop losses put in after you enter the position
How do you manage overnight risk?
you dont LOL
Hey Tom, is there Theta Decay is ES futures options? normally i rely on that when i put strangles. thank you.
There's theta in all options.
How often do you trade
@@mannyahsan5615 depends on buying power and setups. I have 8 strangles on right now. So 2 a week right now. But can be more or less.
Thanks Tom!
with a sizing requirement of 2% of Net Liq, are you not tempted to use some of that massive remaining amount of buying power in the account on some other trades? Seems like most of your account is inactive during this one trade. Perhaps the money can be in a money market account, so at least it is generating some return each month? I am assuming the 3% a month you aim for is on the capital in use and not on the entire account?
Pretty sure entire account. The returns per month on capital are more like 15% I believe.
It is on the entire account (3% of net liq per month ).
You don’t get 50% in 30 days as Theta decay is low, assuming a reduction in Volatility you get some tailwind but not realistic to say 50% in 30 days
@@edgarsmartinez LOL. Actually I have now closed 108 strangles over 2 years with and average of 31 days in trade.
@@TommKing13 this might true but not at 50% of credit. This can only happen if 30 days out the actual price of the underlying was exactly in the same place when put on. To say there would be not delta component for or against, and you would benefit from Theta and Vol crush if any. Hey not trying to be a pain, just trying to manage expectations of other listeners. I like your video.
@@TommKing13 Hi there, thanks for your great video, very thought provoking. This was my question too which was for a 90 DTE strangle, on average are you seeing a 50% profit target around the 30-day mark? Or does 50% tend to materialize around 60ish days into the trade? So far all of my trades using your plan have immediately slammed red and stayed there for at least 30 days so far. I haven't closed any yet, and price hasn't come close to breaching any of my strikes, yet the trades have slammed red and theta doesn't seem to be kicking in (IV was also high when opened). I'm guessing I just need to wait closer to 90 days in order to start getting some relief.
Selling naked PUTS???
What is Tasty’s account requirement for this?
E*Trade requires $500,000!
Fidelity wouldn’t let me put in on either.
Might want to disclose many brokers won’t even let you do this setup.
Pretty much any brokers allows this.
How come you don't like to trade strangles on Natural Gas?
Nat gas is called the widow maker for a reason.
@@richardm654 ...Just watch the movement of Nat Gas (live chart )when its news comes out onThursday's
I'm confused! You're willing to share your strangle trade settings, but not your 1-1-2-2 strategy settings? Maybe I'm missing something.....
ruclips.net/video/hfjMoW0RyC0/видео.html
Thanks Tom..! Why would you not roll the untested side to lock in profit? Would that not be similar to rolling short put of the PDS of LT112 trade to lock in additional credit?
Don't wait for volatility if you want to eat😅
Thank you for this video! I’m new and learning. If you win the first 9 trades at say $500 each (total of $4500), and say trade #10 loses, wouldn’t you lose half of your profit just like that?
Young David Anderson Donald Taylor Susan