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The Skinny on Options: Abstract Applications

The vast, limitless world of derivatives is quite complicated and very complex. So join Dr. Jim and dig beneath the surface – uncover some of the more intricate ideas that this space has to offer, and then apply these abstract concepts into your trading.

Continuous Probabilities Part 2
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Jun 7, 2021

The only way to use probabilities in a continuous space is to shift your focus from points on the curve to areas under the curve. tastytrade explains.

Continuous Probabilities Part 1
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May 17, 2021
Because the underlying mathematics of the market are assumed to be continuous, there are no points on the normal distribution, only areas under the curve.
Supply & Demand is Undefeated
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May 10, 2021
Since Supply and Demand has this uncanny way of always being correct, we feel at tastytrade that starting with price being true is the most strategic choice a trader can make.
When the Greeks Change Teams
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May 3, 2021

With undefined-risk short premium, our theta is always positive and our vega always negative, but with defined-risk short premium, that is not always the case

Containing Runaway Prices
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Apr 26, 2021
As option premium sellers. the biggest risk will always be the big, outlier move. But the tastytrade trading philosophy inherently mitigates these Black Swan risks.
Building Expected Moves
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Apr 19, 2021

Now that we have a Standard Normal Variable that can be standardized into a Z-Score, we can begin to build an Expected Move at tastytrade.

Black Scholes Z Scores
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Apr 12, 2021

Believe it or not, but we use Z-Scores every single day at tastytrade to analyze strategies and choose our strikes.

Standard Normal Variables in the BSM
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Apr 5, 2021

At tastytrade, the Standard Normal Variables that come from the Black-Scholes Model form the foundation for all that we do.

A Posteriori Skill
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Mar 29, 2021

The classic philosophical debate of a priori versus a posteriori has a direct connection to the world of options and how we trade at tastytrade.

Mathematical Magic
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Mar 22, 2021

Not only does a more active approach to trading make it easier to adjust your positions and respond to market conditions, but the geometric return sequence could effortlessly improve.

Unknown Factors to Volatility
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Mar 15, 2021

The fact that the intercept coefficient is statistically significant indicates that there are indeed unknown factors to volatility that have yet to be discovered.

Why the Markets are Random
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Mar 8, 2021

The market randomness that we all feel every day has mathematical underpinnings that range all the way from heteroskedasticity to random volatility shocks.

Price Impact Velocity
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Mar 1, 2021

The propensity for markets to fall so quickly could be the speed with which market makers drop their bid prices in falling markets relative to raising their offer prices in rising markets.

Chaos Theory in Trading
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Feb 22, 2021

Chaos Theory reminds us that we have no control over how a given trade or series of trades will perform, as the underlying systems are built on erratic behavior

Rolling the Tested Side
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Feb 8, 2021

While our standard adjustment protocol for a Short Strangle is to roll the untested side, a good case can be made for rolling the tested side of the strategy at times to recenter the position.

What is a Gamma Squeeze
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Feb 1, 2021

tastytrade explains that a Gamma Squeeze is an options phenomenon that is driven by the counterparty’s desire to hedge their directional exposure from taking the other side of retail order flow.

BLUE
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Jan 25, 2021

BLUE - Best Linear Unbiased Estimator - might appear to be a theoretical construct that only academics can use, but today we see that tastytrade’s own research also has a “BLUEness” to it

Trading Put-Call Parity
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Jan 11, 2021

Not only can Put-Call Parity help us build synthetic stock positions at tastytrade, but it can also help explain extrinsic value differences between Calls and Puts.

Higher Order Greeks That Matter
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Jan 4, 2021
The higher-order Greeks, such as Charm, Vomma, and Color can give tastytraders unique insight into their new trades
The Best of 2020
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Dec 21, 2020
Utility Theory, Risk-Neutral Pricing, ARCH Modeling, and Leptokurtic Distributions - the Skinny at tastytrade had a jam-packed 2020!
Wiener Processess
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Dec 14, 2020
The bedrock to many of the mathematical models that we use at tastytrade is none other than the Wiener Process.
The Endowment Effect
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Dec 7, 2020
As tastytraders, we are all impacted by the Endowment Effect - both at the position level and the portfolio level.
Portfolio Constraints
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Nov 30, 2020
The aggregate levels of directional bias and overall time decay will produce "constraints" that will be relevant for various account sizes.
The Asymmetric Price of Risk
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Nov 23, 2020
Risk is not symmetric between rising prices and falling prices in equity index products, which has been shown to test our strikes more to the upside.
The Option Frontier
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Nov 16, 2020
tastytrade explores what Modern Portfolio Theory might look like if it included derivatives, thus creating an "Option Frontier".

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