[Music]
on what else you got at nine o'clock
we've no uh we know from past studies
that put selling strategy outperforms
other traditional strategies we're gonna
like i said we're gonna expand on that a
lot in the next in the coming segment
and it's not that we're just
sitting here we're bearish on the market
talking about put selling strategies i
know that seems like they're you know
that's a little almost counter
counterintuitive or or almost
hypocritical to a certain extent but
it's not but that's not on the market um
uh we're just throwing out examples
because
in order for us to get everybody to the
next level this stuff has to be kind of
almost second nature you have to believe
it um the one thing we do
i think better than anybody else is
um
is that we stay on a subject long enough
for everyone to really understand you
know kind of all the guts like like most
of our listeners can recite the numbers
and that's powerful right um
so
we know from past studies that we
already did that one here
with the advantage of only having to put
up roughly 20 of the underlying we can
take advantage of the strategy in
accounts with limited capital as well
we wanted to look at specifically to see
if a particular strike was better than
another from a buying power reduction
standpoint because the email that we get
the most with respect to smaller
accounts is um number one i have i'm
trading in an ira account so i have
limited capital to use or number two um
you know i can only trade smaller stocks
because i have certain permissioning
limitations all this kind of stuff so
we're just said okay let us let us
hammer down
to the tightest specific bit of
information so that if you ever need to
make the case or whatever it is you can
do that correct
the further out of the money we sell put
the higher the probability of profit but
the smaller the credit received
assuming that we're bullish is it better
to sell a closer at the money put to
collect a larger credit and not have the
room to the downside and is selling puts
a viable strategy for smaller accounts
so the number one email question is not
so much is a viable strategy but is it
better to collect a bigger credit have a
lower probability of success or is it
better to have a
um a smaller credit a higher probability
of success and we we struggle with the
same thing so we stick around that 30 35
level correct okay let's go to the next
slide to test this we looked at four
years of spy options from 2009 to 2012.
okay agree we understand it's a bull
market but that's all we have to work
with right now each expiration cycle
we sold the one standard deviation put
nearest to 84 out of the money and then
we sold the nearest
out of the money put so essentially just
something like let's call it just like
an at the mo just one strike out of the
money we let them both expire
to cash each cycle let's go next slide
and we do that just so it's easier to do
you know so it makes sense that the one
standard deviation put had more winners
in fact the one standard deviation put
49 winners and the two standard
deviation i'm sorry and the at the money
put 41 winners and how many instances is
that i forgot what was the number of
years
just let's check four years we looked at
four years of spy options from 2009 to
2012
each expiration cycle
four years i'm just trying to think it
has to be a little it has to be longer
than four years because there's 49
instances
12 times
4 is 48. so it's a little bit longer but
whatever
we'll check it out just ask those guys
to just i am us and tell us the exact
number of cases there were um
percent winners 94 winners well we
should be able to figure that out right
there it's going to be 50 whatever it is
50 something small percent winners 94
and one standard deviation moved out
remember this is a bull market and at
the money puts 79 percent but here's the
difference look at the p l tony
1878 dollars by selling the by having
the higher probability of success and
which it did work out that way too
okay so yeah it's just more instances
but it worked out that way and the
standard deviation of returns 456 to
1407. this i felt was really cool
information sure because if i'm a
smaller trader and i'm trying to deal
with the issue of commissions
and i'm trying to deal with like that
like the earlier emailer had i'm trying
to deal with the issue of transaction
fees commissions and also trying to
decide you know so the at the money put
let's just say it's the worst it was
four years but include the first four
months of 2013. okay so it's 52 yes okay
if um
if i'm looking at this and i'm thinking
to myself why through all the years have
we been picking the number between 30
and 35 percent now i validated it right
because the
even though finally we get validated on
something we've been doing we've been
proved wrong a couple of times but now
this validates it because the nearest
out of the money put let's just say that
that has somewhere between 50 and and 60
percent and the one standard deviation
push is 84
we've been doing something around 70 to
70 65 to 75 in that range and i kind of
think that that's probably the sweet
spot and sometimes you don't get to
choose but from one out of the money
strike from the nearest out of the money
strike which obviously works better in a
bull market to
to further out to whatever that is three
or four out of the money strikes look at
the numbers well i had no idea that
it's it's it's con i mean it makes it's
common sense that your percent winners
is gonna be much higher one standard
deviation sure but the p l difference
and the standard deviation of returns is
extraordinary almost three times as
great i mean that's amazing right so so
the argument that we make all the time
that you can you know sometimes
sometimes people say well you know it's
like picking up nickels in front of a
steam roll they use that same line
constantly and
it's it didn't prove out to be that way
but it did prove out that you're picking
up nichols
all right
just i'm going to come back to this
slide let's go next one
so the number of winning trades executed
what was predicted by probabilities 84
and 55 for the at the money put but part
of this is is due to our data which was
from a period of consistent rallies
longer data sets would likely show
probabilities of profit closer to
predicted values so what our own team is
suggesting is that the 90
go back one slide liner for a second the
94 percent of the 70. the 94 should be
closer to 85. and the 79 percent maybe
closer to i think it's a little higher
than 55 i think it should be around 60.
and that's what our own team's even
suggesting but they're saying here that
due to due to that
strong
results are but they already are and and
what's cool about this is let's just say
we went into a prolonged bear market
just for whatever reason you now have
bullets you now have ammo of kind of
where your short calls are going to be
right if you use the same strategy but
on the call side and if we think we make
a very strong bottom at some point in
the future we can go back and reach to
this which again if you're trying to
build up equity in a tasty bite size
account this is a very interesting way
to support the thesis the argument for
you know for having some of that risk on
yeah talk about maximizing returns let's
go next slide
so
um just go back for one second just a
quick second so i just want to repeat
this
so again remember longer data sets will
likely show probabilities of profit
closer to predicted values
but before we go to the next one
remember what it's like to sell premium
there's always this little bit of extra
edge every time we do a study no matter
what we do
the edge always proves out that our
performance is greater than whatever the
expectation is the implied volatility
has a tendency to overstate actual
volatility and that is the key let's go
next slide
the proportion of potential reward and
the variance of that reward is about the
same the capital requirement of the at
the money put is also proportionally
higher than that of the one standard
deviation put by approximately in this
case 1600 to
650 because
you know the spy is a big product
remember the way you figure out the
amount of capital required you take your
short strike and then you add the credit
back to that short strike and you take
about 18 of that and that's probably 17
to 18
is generally speaking the number
very good let's go next slide
selling puts was effective even without
management and entering the trade
regardless of implied volatility we have
shown that managing winners and selling
premium when the implied volatility is
above 50 percent can vastly improve roc
and probability of success so what what
a future study is going to include is
what if we only pick the spots when
implied volatility exceeded the 50th
percentile
what would happen then right now how
much it's all together how much risk
would we take off the table and how
would how much would we improve our
return on capital and our probability of
success under better circumstances we
sold bonds you're saying that because
we've done market measures where when
the iv percentile is above the 50
percent of today's option statistics
that our results are significantly
better and right so we didn't what we
didn't do here was we didn't we didn't
sort it by iv percentile if we had
sorted it by v percentile we think we
would have done better and which is why
we're encouraging you
to tune in daily for all this stuff
because it's so valuable how it all
connects sure let's go to the left slide
while we did generate a greater return
selling the at the money put 3.14 times
more we also saw a greater variance in p
l 3.08 times greater while both strikes
proved profitable going further out of
the money provides the best opportunity
to manage a winner and the most
efficient use of buying power in
accounts with limited capital
is in selling the one standard deviation
put now there are huge takeaways from
this one is it's all about strategy
two is you can tweak the strategies
over time to improve your chances across
the board for all the stuff
three we're learning that although the
returns were so much greater for most
people they're willing to take smaller
returns in return for greater chances of
profitability and more management of
that profitability and gr and smaller
variants in p l
listen also the takeaway is just being a
doer just do it as opposed to sitting
there and being passive yeah our team is
not suggesting at all that it's better
to take the more risk just because there
was more profit from there in fact
they're saying a little bit of the
opposite they're saying quite the
opposite in that their minds and they're
all remember our research team is is
young guys yeah young people i shouldn't
say you guys but just young people and
they have smaller accounts than tony and
i trade with and so they live this
they live in the tasty bite world this
is they don't live in the world of you
know uh they don't have do we wing them
and how
they live in the tasty bites world and
from their standpoint this makes more
sense to them to have the higher chance
of success because they like managing
winners there's a there's a much higher
level of engagement there's a
significantly better sleep and again it
it makes and the limitations of the
account just because of its size also
suits it too so anyway just throwing all
this information out there it's really
fascinating again i want to repeat some
of the keys to this segment then we'll
move on um
the at the money put generated 3.14
more times return but we also saw a
greater variance in p l 3.08 on a
smaller account that we'd be significant
and we did not we did not chop this up
and do it based on implied volatility
percentile which would further our which
would further returns dramatically in in
a positive direction okay so we were
just um uh we didn't pick and choose at
all correct
pretty powerful yeah i think that's
really pretty powerful in fact i think
this is one of the best tasty bite
segments that we've put together in a
long time because it really i'm taking
stuff home from here bat
i'm banking it no i put it up here