In praise of tasty trade

How do I spend my day, while looking at screens of charts and computer code?

Well, from around 1pm London time I’m watching tastytrade.  Most of my trading is with equity and futures options; these guys spend all day talking researching and trading the same stuff.  The banter between Tom and Tony keeps a smile on my face while banging my head against the wall due to programming frustration.

Tom Sosnoff is the host; he made his $$ creating (IMO) the best options-trading platform there is: thinkorswim.  Now he and his old trading buddy, Tony Batista, chat and present some great content in concert with an excellent supporting cast.  Their new project is an option-trading platform for the millennial generation: dough.

I can’t decide which I like better: the show when markets are down, or when they’re up.  Tom seems to be a perma-bear, so this slow grind higher in basically every world stock market kills his mojo.  The show definitely has a different tone depending on market direction.

In any case, the show really helps stave off loneliness and gives some great ideas.  They have a whole different approach to personal finance.  I think the key aspects of the tastytrade ethos are:

  1. Use options-based strategies, to enhance probability of profit in a trade (e.g. buying a stock has a ~50% chance of profit, whereas going long a stock through options strategies can have a chance of profit just about anywhere you’d like).
  2. Trade small.  Never let a position ‘own’ you, such that you must do one thing or another for a particular trade.
  3. Trade often.  If you agree with number 1, choose high-probability trades.  Then trade many times, such that the law of large numbers comes into effect.  Then your expected probability usually comes out as good or better than expected.
  4. Don’t fear unlimited loss.  If you agree with the previous 1-3, understand that options trades with unlimited loss potential (e.g. writing puts/calls) often offer better risk/reward than limited loss equivalents (e.g. spreads).  The spectre of the GFC makes this a hard one for the missus and me, but maybe one day I’ll stop buying insurance against my option writes…
  5. Manage winners.  Again, from the previous points.  It turns out (from research) that options strategies tend to make 0-50% of maximum profit in a fairly predictable and timely way, but the remaining 50% of maximum profit takes nerves of steel while holding positions to expiration.  Forget the nerves, and close out winning trades at 50% of maximum profit.
  6. Duration over direction.  Both in trade initiation and in managing losers, use positive theta to your advantage.  Be paid for the passage of time (i.e. write premium in aggregate).  If a trade goes against you, and you still believe in the trade, keep rolling the trade into the future until your ‘basis’ eventually catches up.  Winning trades seem to last 1-20 days in tastytrade land; losing trades can last months and months.

Anyway, glad to have them around for the banter.

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