The simplified Expected Move formula “Stock Price ✕ (IV / 100) ✕ SquareRoot(N / 365)” allows for traders to easily calculate the market’s expectation for a particular stock to move a certain amount over any number of days. Remember, implied volatility is the driver of expected move, so when IV of a stock changes, so will the expected move. Tom and Tony give an overview of how we can calculate expected move ourselves and how to incorporate into our options trading strategies.

Short premium positions are most profitable in high IV environments, and we trade IVR > 30 as a rule of thumb to ensure this. However, if IVR becomes skewed, there may still be short premium opportunities when IVR 30. With all the major index ETFs having IVR 30, is there still room for opportunity? Comparing the current IV with the 10-year average IV for each index, we can see that each market index has the potential for significant IV contraction and profitable short premium opportunities.

Quantifying the overall risk factors of a portfolio becomes more complicated when you begin including options in addition to equities. The Greeks can be used to characterize risk for individual option contracts, as well as the overall risk of multi-contract strategies and option portfolios. Today we discuss an example of how we can calculate overall portfolio Greeks on the tastyworks platform and use them to analyze overall portfolio risk.

Using delta as our strike selection allows us to get a fairly accurate representation of the risk we are taking on relative to the premium we collect. Over the years, delta has adjusted for the growth in stock price, changes in volatility, and the premium collected. This is what makes it easy to use!

tastytrade provides graphics that explain how your positions and profits look like for a strangle when going inverted.

Tom and Tony define option skew and walk through how to determine where traders perceive the most risk.

Option pricing models require assumptions about stock price dynamics that are not entirely accurate. For instance, the Black-Scholes model assumes that stock prices follow Geometric Brownian motion, which does not take into account jumps, splits, fat tails, or changes in volatility. These dependencies result in differences between theoretical option prices and actual option prices, and these differences can be visualized through the implied volatility surface.

Delta measures the probability of an option expiring in the money, but what does this mean for us?

While event probability is essential to traders, it does not take into account related past events that may be relevant. Conditional probability is a way to estimate the likelihood of an event in the context of known information. Using the conditional probability formula, we look at how often QQQ increases when SPY increases in a very simple example.

Tom and Tony walk through this greek and why it's such a large component of options trading.

Traditional finance reminds us that it's prudent to diversify our portfolios...that we should never put all of our eggs in one basket. It's good practice to split up our eggs across multiple baskets. To examine this idea, the research team conducted a study that compared the risk/return profile of a few single stocks versus a portfolio that was evenly allocated across all those same stocks. What we see is that diversification does indeed leave us with a more balanced risk/return profile.

How much does implied volatility contract when there are up days? Study: - SPY - 2005 to present - Recorded the magnitude and frequency of volatility contractions when the market moved up We find that the when the market moves up on any day, we see a vol contraction of 5% on average. When the market moves up by more than 1%, we see a vol contraction of 8.5% on average.

This segment of Options Jive looks at how many days calls and puts are in the money (ITM). As option sellers, we want our options to expire out of the money. So how long do calls and puts typically spend in the money? The study shows that on average, calls spend almost twice as many days in the money than puts. Calls are also more likely than puts to spend more than one day in the money.

Tom and Tony discuss why tastytrade prefers to trade the middle ground between average P/L and probability of profit.

Iron condors are one of tastytrade's commonly used defined risk strategies. But how do they perform when we look at specific market environments?

Gamma measures the sensitivity of option delta to changes in the underlying price, and theta describes the time decay of the extrinsic value of the option. These two Greeks typically have an inverse sign relationship, meaning that a contract with a positive gamma will often have negative theta and vice versa. This relationship, often described as the gamma-theta tradeoff, presents both benefits and risks to the buyers and sellers of options contracts. Tune in as Tom and Tony walk through this...

Contrary to popular belief, volatility is not dependent on the directional price movements of underlyings. Certain underlyings tend to have a different relationship between price moves of the underlying Volatility is dependent on magnitude of price movements and not the direction of price movements. Tune in as Tom and Tony discuss this concept in depth!

Here we discuss correlation and cointegration, the differences between them, how they're measured, and what they're each used for. We also look at examples of ETF pairs that demonstrate both correlation and cointegration! Although they are often related, correlated assets tend to move in tandem while cointegrated assets tend to have a mean-reverting spread. This makes correlation ideal when focusing on portfolio diversification, and cointegration ideal for strategies that rely on...

Tom and Tony go into the history of the creation of IV Rank and how powerful the metric is to individual investors today.