Those watching tastytrade for more than a few days likely have seen small video snippets we call trade hacks. Tony Battista shares some of the trading knowledge he has acquired during his decades of experience. These hacks either save time, make things easier or both. We've collected the best of them here.
The first hack discussed was using Implied Volatility (IV) to calculate the expected moves of the underlying. The formula was shown and a table was displayed listing the number used in part of the formula for 1, 2, 3, 4 or 5 days out. The head of our research team, Michael Rechenthin, Ph.D, aka Dr. Data, joined the guys to explain this hack which made things much simpler. Tom noted that this would be a helpful calculation when trading earnings plays.
The next hack discussed was when using a strategy of a Vertical Spread should we use a debit spread or a credit spread. When the Implied Volatility Rank (IVR) is above 50% we use a credit spread and when it is below 50% we use a debit spread.
How to estimate an option’s probability of expiring in-the-money (ITM) or out-of-the-money was the next hack discussed. The stock’s Delta was the key here. An example using the 16 Delta option showed that the Delta was the chance the option would expire ITM, that 100 minus the Delta was the chance it would expire OTM and the Delta multiplied by 2 was the chance the option strike would be touched.
Delta was again the key in the hack to determine the number of options needed to hedge a stock position. A table explained how to use Delta to establish Delta Neutral positions.
Vega is one of the Greeks. The formula for using Vega to measure the change in the option’s price based upon the change in IV was shown. Dr. Data noted the importance of being aware of your Vega, especially when IV is at a low level and how the dough platform made that simple.
Watch this segment of Best Practices with Tom Sosnoff, Tony Battista and Dr. Data (Michael Rechenthin, Ph.D) for a better understanding of these trade hacks which can save you time and make things easier.
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