The Skinny On Options Data Science

Why We Need a Larger Toaster

The Skinny On Options Data Science

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

The head of our research team, Michael Rechenthin, has a Ph.d. in Data Science. It’s why we call him Dr. Data. Today he joins the guys to show how we can use the tools of Data Science to identify inefficiencies that can cost us time and money.

Mike starts off with an example that anyone who has worked in an office can understand. A picture is shown of the tastytrade kitchen area. Jules is hogging the toaster and Mike is fourth in line, impatiently waiting to toast his bagel. Mike then went through the math to show how much employee time was wasted waiting to use the toaster. Buying a better toaster that could toast more bagels at the same time would lead to an annualized Return on Capital (ROC) of 900%. Tom joked, “This might be the reason that we don't send our kids to get a Ph.D.”

Mike then examined the traffic congestion caused by construction on Halsted Street. It’s a busy north-south corridor not far from the tastytrade studios. Mike used conservative estimates of the time wasted by commuters in traffic. The amount of time wasted was remarkable.

Now that Dr. Data had everyone’s attention he focused on something that can really make traders more money. A table showing capital efficiency in portfolio management was displayed. The table included our core strategies of a short Straddle, short Strangle and short at-the-money (ATM) Put. Mike compared the P/L on each strategy at expiration versus the P/L when managed at a percentage of the initial credit received (25% for the Straddle, 50% for the Strangle and 50% for the ATM Put). Mike demonstrated that while we make more money on average at expiration, it is not as capital efficient as managing positions. It isn’t even close. The return per day is far superior if we manage our winners.

Watch this fun and informative segment of Skinny on Options Data Science with Tom Sosnoff, Tony Battista and tastytrade’s research team leader Michael Rechenthin, Ph.D., for the very important takeaways and to show how while we may not always be able to be efficient in everyday life being capital efficient can make a huge difference in our trading.

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