Alert

Looking for even more trade ideas? Sign up for Alpha Boost, a FREE email from quiet foundation!

Are You a Driver or a Passenger? | Truth or Skepticism

Feb 11, 2016

By: Josh Fabian

The debate continues, at least for Dylan. As far as we here at tastytrade are concerned, the winner is clear. When it comes to active versus passive management, no one can provide better returns than the individual active investor.

This debate ended faster than Marco Rubio could say, “Obama knows…” three times. Tom [Sosnoff] landed the knockout blow early on with the following analogy. If you had to drive somewhere and you knew the roads were really bad, who would you want driving; you or someone else? Most people would prefer to maintain control of their own fate.

Most passive indexing funds are down nearly 15% since the beginning of the year. For the passive investor, that means the market needs to rebound 15% just to get back to break-even. Individual active investors who stay small, stick to non-correlated, liquid underlyings and trade often stand a far better chance of surviving and making money in this market.

Here at tastytrade, we know with certainty volatility is mean reverting. But that gives us a leg up because we understand selling premium eventually pays. It make take time, patience, and Advil, but for premium sellers, when volatility contracts premium comes. Markets do not need to rally 15% for us to get back to even. We aren’t dependent on something as uncertain as price.

Dylan posed a fair question asking, what if you were selling premium by getting long oil, bonds or S&P futures? Tom’s answer was honest and simple. Getting long or short anything usually comes from an opinion. Taking sides can cost money. Selling premium on both sides, calls and puts, is far less likely to get hurt and far more likely to be profitable. Opinions, like hope, are not a strategy.

At tastytrade, we are big proponents of delta neutral trading. If we sell calls and take on short delta, we also need to sell puts or take on some long delta. Expected moves in the market for a given period of time can be calculated (it’s why we keep Tom “TP” Preston around). That move may be up, down or sideways. We don’t care.

We’re looking to sell premium around the outside of an expected move. Picking winners and losers isn’t where money is made. The results come from selling premium outside probabilistic outcomes. Generally speaking, our wheelhouse is found in those 30 delta puts and calls with approximately 45 days to expiration.

As for direction in the market, blame the Fed, blame Punksatony Phil, blame Dylan, blame whomever. Markets go up and down. It’s what they’re supposed to do. Why they go up and down isn’t because a groundhog did or didn’t see his shadow. It’s not because incompetent people are running the Fed. It’s because sometimes there are more sellers than buyers, and other times there are more buyers than sellers. It’s that simple. We’re here to make money, not place blame.

Sticking to mechanics in this type of market and waiting on premium to come in is the best play on the board. We’re product agnostic. We don’t care what the underlying is just so long as it’s liquid and implied volatility is high.  


Josh Fabian has been trading futures and derivatives for more than 25 years.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”). tastytrade is a trademark/servicemark owned by tastytrade.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.

© copyright 2013 – 2021 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on tastytrade.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.