Market Measures

Mechanical Sizing

| Sep 2, 2016
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    Market Measures

    Mechanical Sizing

    Sep 2, 2016

    We do not believe in “buy and hold” or passive investing . We want you to take control of your financial destiny. We further believe that a mecahnical strategy of selling premium, especially in high Implied Volatility (IV) and high IV Rank (IVR) environments will outperform. To be mechanical, we had to choose some levels to exit a trade that went wrong and to limit the possibility that we would not be able to continue due to adverse performance. Wa want to protect against a downturn and not fully use our account, while still having enough at risk to make money and outperform passive investing. Can this be done?

    Our study was conducted in the SPY (S&P 500 ETF) from 2005 to present. We sold the 1 Standard Deviation (SD) 16 Delta Strangles at the beginning of each month. We sized the positions to use 30% of the available Buying Power (BP) and held the positions until expiration. We closed the positions early if BP Reduction became greater than 80% of net liq.

    A table of the results compared a portfolio that had a 100% long SPY position to a 30% SPY short premium position. The table included the average weekly returns, weekly standard deviation of returns (a measure of risk) and annualized return. The table showed that the 30% short premium portfolio had higher weekly and annualized returns and lower weekly deviation of returns. A graph compared accounts starting with $25,000 and 100% long invested in the SPY to an account that was 30% short premium. The short premium account dramatically outperformed.

    For more information on the subjects discussed here see:

    Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for the valuable takeaways and the detailed results of our study comparing a portfolio 100% invested long in the market to a short premium portfolio initially using only 30% of capital.

    This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.

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