Options Jive

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Take Some "Luck" Out of Trading

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.

On this segment of Options Jive, Tom and Tony discuss how we diversify and increase occurrences to reduce the effect of market timing. They see how one can reduce dependence on “luck” of timing.

Our research typically measures the performance of strategies as averages over 10+ years. A new trader will experience variation in performance not always comparable to 10-year averages.

Study:
  • Spy, TLT, 2005-Present
  • Sold ATM Puts
    -Placed everyday (~3,000 occurrences each)
    -Managed at 50%
    -Closest to 45 DTE
  • Compared
    -Rolling 1-year win rates
    -Cumulative
Results:

On average, these two trades had high win rates, but they might not represent win rates for brand new traders. Interestingly, rolling 1-year windows of win rates SPY and TLT shows how performance can vary. Also, adding more underlyings to a portfolio made performance less variable, given the same timing.

Market timing and lack of occurrences can create significant variation in performance, but new traders can reduce this by diversifying underlyings and placing more trades.

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