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Options Jive

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How to Increase Trading Accuracy

Options Jive

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

We are, at heart, premium sellers. We like to take advantage of Theta (time decay) and that Implied Volatility (IV) overstates the expected move in general. We are convinced that you can put the odds on your side but it’s critical for the “Law of Large Numbers” to work that your number of occurrences be high enough. You also need to know that even if your strategy has a very high success rate it’s a given that if you trade long enough you will have a streak of 3 or more losses consecutively so you need to prepare for that too. Our favorite strategy is to sell Strangles. What key lessons can we learn from a study on selling Strangles that will improve our trading and make us more profitable?

Our Study was conducted in the SPY (S&P 500 ETF) from 2005 to the present. There were a total of 2500 occurrences. We sold the 1 Standard Deviation (SD) Strangles everyday using the expiration cycle closest to 45 Days To Expiration (DTE). All trades were held to expiration.

An 11 year graph of short SPY Strangles was displayed. It plotted the P/L for each trade. Although there were some outliers most of the Strangles were profitable trades. A graphic of the win rate versus the number of occurrences was displayed. The graphic showed that increasing occurrences makes the win rate approach a more stable and accurate level. At 500 occurrences the win rate stayed at an 80% level. A table of the results compared short Strangles for 10 trades, 100 trades, 1000 trades and all trades. The table included the average P/L per trade, median P/L per trade, standard deviation and win rate. The table showed that as number of occurrences increase, the samples’ averages move closer to the averages of all trades (the true value).

For more information on Number Of Occurrences see:

Watch this segment of Options Jive with Tom Sosnoff and Tony Battista for the key takeaways and the results of our study which will show you what to expect so you can properly prepare for it and stick with the strategy to allow a high enough number of occurrences to make the odds work for you.

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