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Kim

tastytrade review (Tom Sosnoff)

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There is a lot of buz lately related to tastytrade, Tom Sosnoff, Karen Supertrader etc. so I thought it would be appropriate to open a discussion topic where members can discuss tastytrade and exchange ideas and opinions.

 

Here are some links to articles and posts about tastytrade.

Karen Supertrader: Myth Or Reality?
Karen Supertrader: Too Good To Be True?
Karen The Supertrader Interviewed by tastytrade
Why 'Karen the Supertrader's' Story Never Made Sense
Tastytrade: A Shill with Skills
Can We Profit From Volatility Expansion Into Earnings?
Buying Premium Prior To Earnings - Does It Work?
Another garbage study from Tasty Trade
Reviews of TastyTrade.com at Investimonials
 

While the shows can be entertaining, here is one opinion that summarizes what tastytrade do:

Quote

 

All of tastytrade promotions and shows are designed to sell investors on the idea that they can become elite traders. It is a powerful message, financial empowerment by building know-how, that has attracted a large and loyal audience. However, when you dig below the surface you will find tastytrade is really just about generating millions of dollars in commissions for TD Ameritrade. Rebranding options day trading as "investing" is grossly wrong. Day trading is not investing, it never was, and it never will be. Tastytrade is just a new age financial shill with some new skills. 

 

 

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My biggest issue with tastytrade was that they push mostly only one strategy of selling naked options and define everything else as "crap". We all know that there are many good strategies, not just one.

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Quoting a trader I respect very much:

 

They (tastytrade) will discredit any strategy you name. The only thing that works is selling options based on implied volatility rank above 50%. A newbie trader will tend to adhere to this advice as the Bible, especially when heard from two market veterans of 2-3 decades and this is what I have a problem with. It discourages research, it discourages self-discovery and study on the individual rookie trader limiting their growth and potential and tying them to one system which in the end is no holy grail, just another vision for trading the markets. Where does this leave the thousands of very successful investors that have made fortunes over the years not selling Credit Spreads? Where does this leave the countless CTAs that have been able to ride monster futures' trends in the past whose returns have been properly audited and documented?

 

At SteadyOptions, we encourage open discussions about variety of strategies. Our strategies work for us, but you will never hear us saying that they are the only thing that works.

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I have no experience with tastytrade but if someone claims having the holy grail we can just go-over. I highly appreciate the diversity of the strategies we are discussing at steadyoptions. Diversity is also the core of all successful living. 

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Well, for those who watch their studies and rely on them for their trading, here is one example. The parameters of the study:

  1. Use AAPL and GMCR as underlying.
  2. Buy a ATM straddle 20 days before earnings.
  3. Sell it just before the announcement.

The results of the study, based on 48 cycles (2009-2014)

  • AAPL P/L: -$2933
  • GMCR P/L: -$2070

Based on those results, they declared (once again) that buying a straddle before earnings is a losing strategy.

 

First of all, dismissing the whole strategy based on two stocks is completely wrong. You could say that this strategy does not work for those two stocks. This would be a correct statement. Indeed, we do not use those two stocks for our straddles strategy.

 

Second, from our experience, entering 20 days before earnings is usually not the best time. On average, the ideal time to enter is around 5-10 days before earnings. This when the stocks experience the largest IV spike.

 

Third, the study does not account for gamma scalping. Which means that if the stock moves, you can adjust the strikes of the straddle or buy/sell stock against it. Many times the stock would move back and forward from the strike, allowing you to adjust several times. In addition, the study is probably based on end of day prices, and from our experience, the end of day price on the last day is usually near the day lows, and you have a chance to sell at higher prices earlier.

 

As a side note, presenting the results as dollar P/L on one contract trade is meaningless. GMCR is trading around $150 today, and pre-earnings straddle cost is around $1,500. In 2009, the stock was around $30, and pre-earnings straddle cost was around $500. Would you agree that 10% gain (or loss) on $1,500 trade is different than 10% gain (or loss) on $500 trade? The only thing that matters is percentage P/L, not dollar P/L.

 

Presenting dollar P/L could potentially severely skew the study. For example, what if most of the winners were when the stock was at $30-50 but most of the losers when the stock was around $100-150?

 

Tom Sosnoff and Tony Battista conclude the "study" by saying that "if anybody tells you that you should be buying volatility into earnings, they really haven't done their homework. It really doesn't work".

 

At SteadyOptions, buying pre-earnings straddles is one of our key strategies. Check out our performance page for full results. As you can see from our results, the strategy works very well for us. We don't do studies, we do live trading, and our results are based on hundreds real trades.

 

Of course the devil is in the details. There are many moving parts to this strategy:

  • When to enter?
  • Which stocks to use?
  • How to manage the position?
  • When to take profits?

And much more.

 

So we will let tastytrade to do their "studies", and we will continue trading the strategy and make money from it. After all, as one of our members said, someone has to be on the other side of our trades. Actually, I would like to thank tastytrade for continuing providing us fresh supply of sellers for our strategy!

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When I discovered them I watched a bunch of their videos and found them entertaining.  Then I heard Sosnoff completely dismiss trendfollowing and claimed that "no one" would be successfull long term and that all the most successful traders are/were discretionary traders.  It was obvious from the way he was talking about it that he simply wasn't informed on what trendfollowing is and definitely knew nothing of firms like Dunn, Cheseapeake, Campbell, AHL...etc etc

 

I dont give a crap if he's not a fan..people need to use what works for them.  But to be that black and white about it without having any idea what he was talking about was a big turnoff.

 

Contempt prior to investigation will keep a man in everlasting ignorance. (paraphrasing herbert spencer)

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I suspect that he does have an idea about trendfollowing. But it does not serve the main purpose of tastytrade which is generating commissions for TOS. trendfollowing doesn't require frequent trading.

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1 hour ago, SteadyOptions said:

I suspect that he does have an idea about trendfollowing. But it does not serve the main purpose of tastytrade which is generating commissions for TOS. trendfollowing doesn't require frequent trading.

fair point...but the way he was talking about it indicated a lack of understanding (if not awareness).  I'll see if I can find the video

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He wasn't trading for 30 years. He was a market maker in 1980s, then co-founding Thinkorswim in 1999 and sold it 10 years later. It doesn't necessarily mean he was trading by himself. I'm not even sure he is trading today. There is no evidence that he does. No track record, nothing.  

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in the business so to speak.

I think his subscribers can pay to follow his trades on dough but I haven't seen him publish any kind of performance stats.  Have you had any personal interaction with him?  

Edited by RapperT
syntax

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There used to be a number of tastytrade personalities that you could follow and see what they traded along with their results.  I was on the site recently however and couldn't find them.  The trade results were mixed, as I remember.  Most were profitable, only a few quite profitable and a few traders losing.  I didn't see anyone's trading style at that time that I wanted to follow though.

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I didn't have any personal interaction with Sosnoff. However I know that he was asked for years to provide his personal track record, and he has been refusing to do it. For someone who claims to be honest and transparent and take care of the retail investor, refusal to show track record speaks volume in my opinion.

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I  was just wondering, your antipathy for them seems extra high...haha

 

Yeah the lack of documented track record is all i needed to see to look elsewhere (luckily i did and ended up here).

 

Edited by RapperT
edit for content

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https://chatwithtraders.com/ep-087-tom-sosnoff/

 

"There has never been a quantitative model, either institutional or individual, that has beaten the market."

 

-also claimed that Tasty Trade methodology and HFT are the only way to consistently be successful. 

 

When the host confronted him with the fact that traders do exist who have been very successful with other methods, he replied "many of them lie." Obviously some traders do lie but the implication was that anyone who claims to be consistently successful is lying.   This was all in the first 28 minutes of the interview...havent listened to the rest

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11 minutes ago, RapperT said:

"There has never been a quantitative model, either institutional or individual, that has beaten the market."

 

-also claimed that Tasty Trade methodology and HFT are the only way to consistently be successful

 

When the host confronted him with the fact that traders do exist who have been very successful with other methods, he replied "many of them lie." Obviously some traders do lie but the implication was that anyone who claims to be consistently successful is lying.   This was all in the first 28 minutes of the interview...havent listened to the rest

Why I'm not surprised.. I guess he didn't see our track record. But this is the same guy who refuses for years to reveal his performance. There is even no proof that he actually trades.

 

 This is My 2015 Personal Account Return: 80.2% Tom Sosnoff, trading many strategies that are OPPOSITE to TastyTrade methodology. Care to show yours?

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you should listen to the podcast...it's provocative to say the least.  I almost wonder if its schtick.  I cant imagine he really believes only he knows how to be successful.  As you said, we dont even know if he actually is.

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So when I think of quantitative models - my first thought is Renaissance Technology - a hedge fund that was/is so successful that they returned most of the client money so they could continue trading their own capital. 

 

Quote

 

"From 2001 through 2013, the fund’s worst year was a 21 percent gain, after subtracting fees. Medallion reaped a 98.2 percent gain in 2008, the year the Standard & Poor’s 500 Index lost 38.5 percent."

— Rubin and Collins. June 16, 2015. Bloomberg

 

 
 
 

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8 minutes ago, dbh21 said:

So when I think of quantitative models - my first thought is Renaissance Technology - a hedge fund that was/is so successful that they returned most of the client money so they could continue trading their own capital. 

 

 
 
 

I mean the list goes on and on...Renaissance is a great example. 

 

Bill Dunn has 30 years of documented success: 

dunn.jpg

dunn2.jpg

Edited by RapperT

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Just listened to the podcast. I must say that it is really rare collection of complete and unproved BS. I really feel sorry for his followers, especially novice traders who take his advice at face value.

 

Quote:

"THE ONLY WAY TO MAKE MONEY IN THE MARKET IS BY SELLING NAKED OPTIONS" 

 

Really??? 

 

Quote:

"When volatility is high we just sell it and wait for the positive theta to do the job"

 

Really? I have news for you Mr. Sosnoff: IV is usually high for a reason. If NFLX options imply 10% before earnings and the stock moves 20% or more, will positive theta really help you??

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I'm pretty shocked they would suggest this while VIX is near record lows. 

I work a little with a fund that sells weekly strangles on the SPX and I was talking to another one that sells monthly straddles on the SPX. Both are fairly conservative and very profitable. However, the difference is that they employ one single strategy, they have a team to monitor it, and they monitor it fiercly. In both cases they hedge out their naked positions quickly depending on the market. I can't imagine many TT listeners have that time or effort.

I'm also a little shocked that people have the time or desire to watch this program. There is a meetup here dedicated to TT followers.

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It is a complicated area.

I understand their apparatus because I am basically a mirror of them, in terms of our respective histories.

Both Tom and I got our first seat on the floor in 1980 and lived through the evolution of many different era's in the world of trading.

We both got "hip" to options in the days when there were no "exchange traded" options and were among the first to trade them and posted our "flags" on the (options) "moon" from the beginning.

All of the retail traders today, have not lived through that evolution. They just walk in the door and get the benefit of an enormous amount of knowledge and experience right up front.

I think I can benefit from Tom more easily than others because I understand where he is coming from. Both, in terms of the history of the knowledge, and how, the "pioneers" uncovered, all on our own, what everyone gets to enjoy today, in the electronic age.

I also understand his need to be a TV host with "schtick" to attract viewers commercially for what is basically "part" entertainment.

He definitely is NOT  all black or all white.

But, it takes a certain, experienced, objective mind,and perspective to be able to cipher the BS and entertainment, from the solid research and , mostly, good information.

But, for beginners, who do not know any better, yes, it can be dangerous stuff, if one cannot separate the inflated ego, and "our way is the only way"..from the good stuff.

And there really is a LOT of good stuff. But, you must enter at your own risk and be able to know the difference from "value"  and "BS".

I wish to God I had his data base and team of analysts available to ME.

I would use all of that valuable info and talent in a very different way.

I would use it to search for new ideas, rather than validate "my way" based upon "ego".

He REALLY does have all the tools to present a fabulous source of learning and research.

But, I feel he is up against satisfying competing interests being in the position he is in...plus , his ego does get in the way.

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I just want to add, or reiterate, that IF you are able to distill the 10% of BS that he is saying from the 90% of valuable information, it can be extremely helpful.

I will just point out 1 tidbit that I really should have known, and practiced, on my own, which because of the way it kept getting presented by TT, has increased my profitability in a very big way....and it is so damn simple.

It is the practice of locking in profits at some % of the the maximum value of the premium collected if held until expiration.

Even though they make such a fuss over the fact that they  ONLY sell options, which , on it's face, is just a stupid mindset to get locked into....this will be helpful whether you are short, or long premium, in a defined risk (spread) context.

You sell something for $2.00 If you wait until expiration, and live through all of the ever increasing risks of rising gamma that happens in the final days, the most you will make is $2.00.

The concept of taking profits at some % of full value has increased my profits, and reduced a high % of potential losers for me at least.

And, it makes good sense, just on it's face.

You sell a spread for $2.00 with 45 days to go, and after 3 weeks you can buy it back for .70 cents just before the period of rising gamma begins. This should be a no-brainer.

They focus on 50% of maximum profits but, it can be any pre-defined amount...and it gives more "discipline" to the trade.

It will work the other way too. If you are a "buyer" of a spread.

Because, in both cases, there is a pre-known, maximum value of the profit that can be achieved, you can take profits at your OWN defined % of that maximum profit.

In the end it is no different than simply having an exit plan and taking profits before you might end up giving all or some of them back.

Just take from TT what YOU feel is the reasonable, valuable, info and ideas, and make into something that is your own.

And discard the BS....you know the difference between the two!

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If it was only 10% BS.. It is much more.

 

The concept of taking profits at pre-defined point is well known. It is not something invented by tastytrade. The concept of negative gamma risk is well known too. You might notice that I never hold negative gamma spreads till expiration - in fact, I rarely hold them till expiration week. My rule of thumb is to cover the short spread for 20-30% of the maximum value. tastytrade advocates 50%, which is fine - but you need to define a rule and stick to it. Discipline is the key.

 

"And discard the BS....you know the difference between the two!" - here lies the biggest problem: you and I might know the difference. I bet 90% of his followers don't. They just take 100% of what he says at its face value, especially when he says it with such conviction and charisma.

 

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2 minutes ago, SteadyOptions said:

If it was only 10% BS.. It is much more.

 

The concept of taking profits at pre-defined point is well known. It is not something invented by tastytrade. The concept of negative gamma risk is well known too. You might notice that I never hold negative gamma spreads till expiration - in fact, I rarely hold them till expiration week. My rule of thumb is to cover the short spread for 20-30% of the maximum value. tastytrade advocates 50%, which is fine - but you need to define a rule and stick to it. Discipline is the key.

 

"And discard the BS....you know the difference between the two!" - here lies the biggest problem: you and I might know the difference. I bet 90% of his followers don't. They just take 100% of what he says at its face value, especially when he says it with such conviction and charisma.

 

I'm sorry if it came across that I was saying that taking profits at some % of max value was "invented" by TT. Of course it was not.

I was just saying that this is something I should have been more focused on..on my own, all along, and it was just coincidence, i guess, that it happpened to be TT who made me think more about it.

The idea of "defining your profits" is as old as trading itself. TT did not invent it.

But , wherever I may have gotten it into my head from, and was the cause for improved profits, has been helpful to me.

I know that you do the same, or similar thing as well. All good traders do some variation of this.

It just turned out that I happened to get the idea shoved into my face by them, only because I had been listening to them for a few years.

I only started with you just recently.

But, it could have been the other way around. It's just the way it happened to work out.

And you are VERY right about all of the people, most definitely the majority of more novice traders, who , since they are coming into this not knowing much, ARE very vulnerable to believing all of the BS from TT because of the "appearance" that they present. A lot of that is a function of it also being a "trading entertainment" show!

But, both you and I, can easily present a long list of all of the stuff that they are saying that is pure nonsense.

And I bet our lists would be identical.

We all know, on balance, as a seller of premium, you have more things working in your favor than a net buyer.

But, anyone who makes an "Absolute" committment to NEVER be long premium is out of their minds.

There is probably a lot of "ego" involved in that.

They have "drawn their line in the sand" and now they have to stick by it!

Even though I am probably short premium 80% of the time....I am sure that I have made more money the 20% of the time that I found the right moments to be long premium and had the value of "leverage" working for me.

But, that is a dangerous thing because, over the long run, being long premium will be a loser if it is all you do.

After making an outsized return from the leverage of being long premium, and having it work, it is too easy for many people to fall into the trap of getting "addicted" to it.

And that is where they will start to go downhill.

It took a long time but, I understand what generally is the right balance and being long premium , for me, despite the gains, is still the exception, never the rule.

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Not sure if you had a chance to see this article about buying pre-earnings straddles. Their study was so absurd that I still cannot understand if it's ignorance or deliberate, skewing the rules in their favor to reach the desired results. When I confronted them and proved how skewed their study was, instead if admitting it, they just removed the study. But after some time they made another one, with similar results. They based the whole study on 2-4 stocks, which are among the worst for this strategy, and set the worst possible parameters. And they call it "research".

 

But I'm not complaining. As I said few times, we need someone to sell us those straddles so we can profit.. I just feel sorry for his followers who blindly trust his "studies" without double checking them.  

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10 minutes ago, SteadyOptions said:

Not sure if you had a chance to see this article about buying pre-earnings straddles. Their study was so absurd that I still cannot understand if it's ignorance or deliberate, skewing the rules in their favor to reach the desired results. When I confronted them and proved how skewed their study was, instead if admitting it, they just removed the study. But after some time they made another one, with similar results. They based the whole study on 2-4 stocks, which are among the worst for this strategy, and set the worst possible parameters. And they call it "research".

 

But I'm not complaining. As I said few times, we need someone to sell us those straddles so we can profit.. I just feel sorry for his followers who blindly trust his "studies" without double checking them.  

That is what I meant about them "drawing a line in the sand" about a particular strategy, approach, concept, etc.

I think there is a lot of "ego" involved.

Now that they have made a claim, unlike more "enlightened" people, who have the ability to re evaluate, and admit they might have missed something, or flat out wrong, they require, of themselves, to have to defend it.

You can make any claim you want, and , if you massage the data enough...you can easily make it appear that you have "proved" that your idea is right.

"Just look, this goes back 10 years, 5000 occurances, etc"

I think I remember watching, either the one you are talking about, or another one on the same subject, and just thinking "oh come on!"

I mentioned that I traded on the floor of many exchanges for 30+ years.

But , the first 12 years that I was on the floor,it was only "commodity" exchanges (Gold, sugar, crude etc).

I traded "professionally" for 12 years and never once, ever, bought or sold a stock, or stock option.

Then I bought a seat on the Amex, which is where the SPY was invented, among others, plus options on most stocks.

So, the whole "equity" mentality was all new to me. Even after 12 years on the floor.

I never even heard, or paid attention to the concept of earnings.

But, after I was there about 6 months, someone who I was friendly with, pointed out that everybody , in some form , or another, buys IV at some period leading up to earnings. Before , or just as IV is beginning to start it's move up...and the "secret" is "always get 100% OUT of the position just before earnings are announced.

They would wait until 3:55 to get out.

But, I must point out that this was like 1992, and there was no "retail" community to speak of....and definitely no retail trading platforms.

So it was "easy pickings" at that time, and it worked pretty much all the time.

But, everything was much simpler, and there was less competition from a "knowledgable" retail public.

Anyway, that was my introduction to the whole basic concept.

We did not necessarily get long "textbook" strategies, like straddles etc.

We just bought front month, delta neutral, IV.

For example, buy 100 30 delta puts and buy 3000 shares of underlying. It's all the same thing.

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I was mostly premium seller and I have mixed experience. it works well most of the time - until it doesn't.

I followed mostly TastyTrade.  It sounds really good in theory, but the strategies are easier to describe than to implement. I started looking for alternatives and found SO.

The Pre-Earnings Straddles is an amazing strategy. It is high probability and low risk, and unlike premium selling, when you lose, you don't lose much.

Tom Sosnoff claims that selling premium is the only way to make money in options, but SteadyOptions is a living proof that this is not true.

There is a good reason why none of tastytraders (including Sosnoff) is willing to reveal their track record. Unlike SO, they are simply not profitable.

 

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I agree. I used to trade like tasty trader & lost significant portion of net worth. chasing losing trade by rolling up/down strike, premium selling before earning announcement, maintaining short delta, all looks crazy concept to me now. I am glad that I woke up before I lose everything but it was little late.

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I have been SteadyOptions member almost since the beginning. I will take this paid site over "free" tastytrade every day. 

btw, Kim was among the few ones who called Karen Supertrader fraud when everyone else considered her a hero. Good call. Not the only one.

tastytrade has an army of marketers and "researchers". Ever wondered who is financing all those parasites? I can guarantee you it's not Tom Sosnoff. 

 

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The one thing that they are absolutely unshakable about is...they will NEVER buy premium, EVER, under any conditions.

The kiss of death in this business, is a closed mind, and not being open to learning, and exploring new ideas.

Yes, there is a lot to be said about premium selling but, there is a time and place for everything.

Personally, when I do sell premium, I like to have "defined risk".

I remember a segment of theirs , when they were trying to make people feel comfortable selling outright straddles, and strangles, and how there REALLY isn't the great risks associated with it that most people think.

They did one of their "curve fitted" backtests, to show how a "black swan" really only happens once every 10 years, so there is 9 years 264 days that you are missing out on, by buying protection.

It might be acceptable to be short a straddle, while the market is open, so that you can defend it if necessary but, at closing time, you have to buy protection.

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16 hours ago, cuegis said:

The one thing that they are absolutely unshakable about is...they will NEVER buy premium, EVER, under any conditions.

The kiss of death in this business, is a closed mind, and not being open to learning, and exploring new ideas.

Something everyone should frame and put above their PC when trading - thing is that looking for patterns is a fundamental part of human nature. It is probably the prime evolutionary edge that put humans where they are on this planet. Hence we all have a tendency to look for patterns and we are very good at it - in fact we can see patterns in pure chaos (e.g. the Rorschach blot test or indeed the stockmarket). The attraction of a simple pattern based rule like "Sell premium" is that its easy to understand and satisfies a very deep seated psychological need in us. Accepting that for 99%+ the stockmarket is a walk in the park is counter-intuitive to almost everybody, show a technical analyst a chart generated by a random number function and they will show you resistance patterns and supports - its even harder for people to let go of a pattern that was once successful but due to change of circumstances or arbitrage stops being successful.

I only came across Sosnoff earlier this year - at first I was intrigued and amused - some of his stuff is quite entertaining. However when you look at their 'remedies for trades gone bad' is when you realise they are a lethal danger. Inevitably they recommend sticking to the bad trade and for Iron Condors for example reducing them eventually to an Iron Fly practically locking in losses at every step and making the chances of breaking even let alone profit smaller and smaller. In an exchange with them over that they stubbornly stuck to the POV that whilst my remark was valid sticking with the strategy for better or worse was the way to do things. Thats where I checked out.

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The idea of selling options based on the premises that "90% of options expire worthless, so lets sell them. Lets be the house" sounds compelling to new traders - until they have few big losses and start to realize that things are more complicated.

After being burned countless times, tastytrade continue recommending selling options before earnings on high flying stocks. Just ask those who did it before last FB earnings - Lessons From Facebook Earnings Disaster. Try to repair this one after it lost 10 times all previous wins worth.

So many people follow Tom Sosnoff because of his charisma - they simply don't realize how risky and dangerous his methods are.

 

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This pervasive statement that gets thrown around about "90% of options expiring worthless" is so wrong, on so many different levels.

We can go down a long list of all of the reasons why it is totally meaningless. But, it is a LONG list.

For example...just from an "option buyer" point of view, the question really should be "where did the option travel to throughout it's lifetime.?"

It may have traded $2, then .10 , then $8, then .50, then $17 and expire worthless.

Who knows how many options buyers could have bought it for $2, and sold it for $8 during it's lifetime, with the knowledge that it is a wasting asset, and one should be out of it before the heaviest time erosion starts to hit.

That is just one, of dozens, of reasons that could be given.

Then there is the whole other dimension of more "sophisticated" traders, who buy one option, and sell another against , as a spread, etc.

The list goes on, and on...

They are SO irresponsible in all of their presentations, because they are approaching it from a "marketing" perspective, rather than an educational one.

And, worst of all, they are appealing to a group of people, who are mostly novices, and appealing to that desire of wanting to make easy money.

It "sounds" so good to these people but, out of everything they present, it is just "theoretical" ideas, attempting to be backed up by "curve fitted" back tests.

They never actually go through a systematic, step by step, explanation, of a "coherent" strategy. Just nice sounding ideas, which do not work, in the long run, and probably even in the short run.

Edited by cuegis

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12 hours ago, luxmon said:

Tom must either have a very short memory or getting desperate; he brought back Karen to share her "success story"

https://www.tastytrade.com/tt/shows/geeks-on-parade/episodes/trading-for-your-future-with-karen-geeks-2019-07-22-2019

I used to give Tom the benefit of the doubt and thought he was trying to do right and maybe just kept making mistakes or misspeaking but this happens over and over again.   I try to watch their Market Measures everyday to see what strategies they are backtesting.    Its almost unwatchable now.  The way they present the data is so misleading.   For example, they will show how covered calls on SPY are great because they reduced volatility and compare the volatility of the covered call to buy and hold SPY to show the covered call is better.   Tom then says "If anyone tries to tell you selling options against your position does not work you need to RUN away from them."    They then "forget" to show the return profiles between the covered call and buy and hold because that would have shown buy and hold to outperform the covered call (on SPY from 2006-present).   

 

Because they want people to trade options (and generate commissions for TasyWorks), I feel this is misleading and almost criminal.   Its like Burger King having their own TV channel and telling people they should always eat burgers all the time for all their meals because they taste great and its the best way to eat when we have actual data and science that shows this is not true.

 

 

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I  still give him benefit of the doubt as I take his show as entertainment. People take a bizarre interest in the likes of Karen. I saw this for the first time in the 1980ies when courtesy of Uncle Sam a Dutch investor- I use the word loosely here - was convicted of fraud for his investment offering called American Land Program. Its main point was to sell plots of desert as potential sites of urban development and therefore profit. It was wrong in more ways than I can describe in a post suffice to say the investors money was gone.

 

The perpetrator spent time in a us jail and later got into civil and I think lendl trouble back home too. Once out of jail he obtained guru status... why you will ask? I have no idea he was a fraud and on top of that his ideas were unsound. Yet he has a rabidly vociferous group of supporters and managed to get himself on TV and internet talking gig circuit where he pronounces inanities as if they were profound.

Even mainstream media have  been taken in by now and it's so lucrative he doesn't need to commit fraud anymore go figure.

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    • By Kim
      We already debunked some of those "studies" here and here. Today we will debunk another study, and will show how to do it properly.

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      Tap Here to See the back-test

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      Tap Here to See the back-test
       
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      Tap Here to See the back-test


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      Tap Here to See the back-test

       
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      Tap Here to See the back-test

       
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      Tap Here to See the back-test

       
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      What lessons we can learn from this debacle?
       
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      Here are some articles about Karen SuperTrader:
      Karen SuperTrader: Myth Or Reality? Karen The Supertrader by Optionstradingiq A Glimpse of option strategies of Karen Karen The Supertrader Interviewed by tastytrade Karen the Supertrader's Winning Strategy Relied on Fraud, SEC Alleges Karen The Supertrader - SJ Options Tastytrade: A Shill with Skills The Spectacular Fall Of LJM Preservation And Growth
    • By Kim
      This is a critical issue that many traders don't fully understand.

      To understand the real risk this lady is taking, I would like you to take a look at Victor Niederhoffer. This guy had one of the best track records in the hedge fund industry, compounding 30% gains for 20 years. Yet, he blew up spectacularly in 1997 and 2007. Not once but twice.
       
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      Last fall, Niederhoffer sold a large number of options, betting that the markets would be quiet, and they were, until out of nowhere two planes crashed into the World Trade Center. “I was exposed. It was nip and tuck.” Niederhoffer shook his head, because there was no way to have anticipated September 11th. “That was a totally unexpected event.”
       
      Well, guess what - unexpected events happen. More often than you can imagine.
       


      The market bottomed right after Niederhoffer was margin called. By November, the market was back near highs. His 830 puts went on to expire worthless - meaning his trade, had he been able to hold on, turned out to be profitable.

      But his leverage forced his liquidation. He was oversized and couldn't ride the trade out.

      Niederhoffer had shorted so many puts that a run-of-the-mill two-day market selloff sent him out on a stretcher.

      If he had sized the trade correctly, he would have survived the ride and took home a small profit. But the guy was playing on tilt, got greedy, maybe a bit arrogant, and lost all of his client's money.
       
      Karen is managing over 300 million dollars now. Her annual returns are in a 25-30% range. Are those good returns, based on the risk she takes?
       
      Not in my opinion. I believe that betting 300 million dollars on naked options is a disaster waiting to happen. I'm sure that most of her investors are not aware of the huge risks she is taking. Niederhoffer's story should be a good lesson, but for most people, it isn't. Unfortunately, people desperately want to believe there is a way to make money with no or little risk.
       
      Personally, I have hard time to understand why Sosnoff is promoting those strategies. But this is a different story.

      As a side note, this article is not an attempt to bash tastytrade. It is an attempt to show a different side of the coin and point out some historical cases. If we don't learn from history, we are doomed to repeat it. tastytrade advocates selling premium based on "high IV percentile". They ignore the fact that IV is usually high for a reason. Personally, I consider selling naked options before earnings on a high flying stocks like NFLX, AMZN, ULTA, TSLA etc. as a very high risk trading. tastytrade followers consider those trades safe and conservative. Matter of point of view I guess.

      Some tastytrade followers argued that PUT Write index performed better than SPX. And it is true. But those are completely different strategies. The original purpose of PUT Write index (or any naked put strategy) is to buy stock at a discount and reduce risk. As long as you sell the same number of contracts as the number of shares you are willing to own, you should be fine, and in many cases to outperform the underlying stock or index. The problem with Karen Supertrader and Niederhoffer was that they used too much leverage. They sold those naked options just to collect premium. Same is true when you sell strangles before earnings.
       
      Related articles:
      Karen SuperTrader: Myth Or Reality? Karen Supertrader: Too Good To Be True? Do You Still Believe in Fairy Tales? Selling Naked Put Options The Spectacular Fall Of LJM Preservation And Growth James Cordier: Another Options Selling Firm Goes Bust  
      June 2016 update:  Turns out Karen is under investigation by the SEC. Read the details here and here.
    • By Kim
      First, few facts about Karen the Supertrader's strategy. She started trading index options in 2008 with $100,000. The highlights of her strategy:
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      Here is the video:
       
       
      Today she manages 190 million dollars, after making nearly 105 million in profits.
       
       Before we start analyzing Karen the Supertrader's strategy, lets be clear: she did NOT make 105 million in profits as TastyTrade claims. That number includes money from new investors. This headline is misleading at best, deception at worst.
       
      How much did she really make? We don't really know, but lets try to "guess".
       
      With SPX currently at 2075, she would sell May 1825 puts and 2280 calls. This is how the P/L chart would look:
       

       
      So she would get around $700 credit on ~21k in margin. If she holds till expiration and both options expire worthless, the trade produces 3.5% gain in 59 days. That's 21% annualized gain on 50% capital, or ~11% gain on the whole account.
       
      This assumes that both options expire worthless and no adjustment is needed. This also assumes regular margin. With her capital, she obviously gets portfolio margin, so her margin requirements are significantly less. But if she wants to take advantage of portfolio margin, she has to sell more contracts, taking much more risk. For the sake of her investors, I hope she is using 50% of the regular margin, not portfolio margin.
       
      In any case, I have hard time to see how she can make more than 25-30%/year with this strategy. Don't get me wrong, this is an excellent return - however, by selling naked options, she also takes a LOT of risk. To make 25-30%/year with this strategy, she must use a lot of portfolio margin - which means a lot of leverage.  Karen the Supertrader’s strategy is also short gamma and short vega, which means as the market moves against her, the positions become worse at a greater rate. If volatility spikes like it did in 2008, her account will be gone in matter of days.
       
      Here are some questions/comments taken from public discussions about Karen SuperTrader:
      I really have no idea how that is possible. In the TOS platform, if I sell a naked Put, the usual margin required is very large. We’re talking that my short Put usually would yield between 1.5% – 2.5% of the margin required. - I think there is more than a fair chance she may be a fraud and possibly even an invention of TastyTrade. Any manager worth her salt would be happy to provide audited returns, especially if only managing 150 million. She is probably generating around 30% a year while taking a lot of risk. I don’t know if that makes sense in the long run. Another thing that’s strange is the fact there’s not even one chart or table of her performance. I hear a lot of big numbers but just give the facts black on white. This strategy will only work for a period of time. When it stops, the results will be catastrophic. If she was that good as she claims she is, after 7 years of such spectacular returns she would have few billion under management, not 190 million. It’s Finance 101 isn’t it? The higher the return, the higher the risk you have to take. If she is generating 30% or greater per year, she is taking on a lot of risk. Hopefully her investors realize that.  
      Here are some articles about Karen SuperTrader:
       
      http://www.optionstradingiq.com/karen-the-supertrader/
      http://smoothprofit.blogspot.ca/2012/11/a-glimpse-of-option-strategies-of-karen.html
       
      So: IS Karen SuperTrader myth or reality? You decide.
       
      June 2016 update:
       
      Karen is now being investigated by the SEC for fraud. Don't say we didn't warn you.
      Read my latest article: Karen Supertrader: Too Good To Be True?
       
      I suspect that investors will not learn the lesson from this case.  Humans desperately want to believe there is a way to make money with no or little risk. That’s why Bernie Madoff existed, and it will never change.
      TastyTrade removed all articles and videos related to Karen the Supertrader from their website and YouTube right after the SEC investigation started, but returned them few days afterwards.
       
       
    • By Kim
      The study was done today - here is the link. The parameters of the study:
      Use AAPL and GMCR as underlying. Buy a ATM straddle option 20 days before earnings. Sell it just before the announcement. The results of the study, based on 48 cycles (2009-2014)
      AAPL P/L: -$2933 GMCR P/L: -$2070 Based on those results, they declared (once again) that buying a straddle before earnings is a losing strategy.
       
      What's wrong with this study?
      Dismissing the whole strategy based on two stocks is completely wrong. You could say that this strategy does not work for those two stocks. This would be a correct statement. Indeed, we do not use those two stocks for our straddles strategy. From our experience, entering 20 days before earnings is usually not the best time. On average, the ideal time to enter is around 5-10 days before earnings. This when the stocks experience the largest IV spike. But it is also different from stock to stock. The study does not account for gamma scalping. Which means that if the stock moves, you can adjust the strikes of the straddle or buy/sell stock against it. Many times the stock would move back and forward from the strike, allowing you to adjust several times. In addition, the study is probably based on end of day prices, and from our experience, the end of day price on the last day is usually near the day lows, and you have a chance to sell at higher prices earlier. The study completely ignores the straddle prices. We always look at prices before entering and compare them to previous cycles. Entering the right stocks at the right time at the right prices is what gives this strategy an edge. Not selecting random stocks, random timing and ignoring the prices.
       

       
      As a side note, presenting the results as dollar P/L on one contract trade is meaningless. GMCR is trading around $150 today, and pre-earnings straddle options cost is around $1,500. In 2009, the stock was around $30, and pre-earnings straddle cost was around $500. Would you agree that 10% gain (or loss) on $1,500 trade is different than 10% gain (or loss) on $500 trade? The only thing that matters is percentage P/L, not dollar P/L.
       
      Presenting dollar P/L could potentially severely skew the study. For example, what if most of the winners were when the stock was at $30-50 but most of the losers when the stock was around $100-150?
       
      Tom Sosnoff and Tony Battista conclude the "study" by saying that "if anybody tells you that you should be buying volatility into earnings, they really haven't done their homework. It really doesn't work".
       
      At SteadyOptions, buying pre-earnings straddle options is one of our key strategies. Check out our performance page for full results. As you can see from our results, the strategy works very well for us. We don't do studies, we do live trading, and our results are based on hundreds real trades.
       
      Of course the devil is in the details. There are many moving parts to this strategy:
      When to enter? Which stocks to use? How to manage the position? When to take profits? And much more.
       
      So we will let tastytrade to do their "studies", and we will continue trading the strategy and make money from it. After all, as one of our members said, someone has to be on the other side of our trades. Actually, I would like to thank tastytrade for continuing providing us fresh supply of sellers for our strategy!
       
      If you want to learn more how to use it (and many other profitable strategies):
       
      Start Your Free Trial
       
      Related Articles:
      How We Trade Straddle Option Strategy
      Long Straddle: A Guaranteed Win?
      Why We Sell Our Straddles Before Earnings
      Long Straddle: A Guaranteed Win?
      How We Made 23% On QIHU Straddle In 4 Hours
    • By Kogelet
      Dear community!

      I would like to get an opinion about the following video. I posted the link below. 
      After making some research, I made the following assumptions and conclusions. 
      - Options are probability-based financial instruments. The premium paid for buying a straddle is supposed to include all risks related to the potential change of IV, theta, gamma. 
      - The chances of gain are 50/50 similarly to any short time predictions of the market price. Besides, you lose the spread and pay commissions. 
      - Options pricing already includes any potential increase in IV and time decay is more likely to kill the potential trade.
      - As the markets are very efficient, Options pricing already includes information about historical volatility. Even if we find stocks with high historical volatility during previous earnings, the greeks are always balanced between each other to make your chances of win to 50/50 minus spreads & commissions. 
      So, what you think?
       
       
      As options are 
       
       
    • Guest Chris
      By Guest Chris
      Tom Sossnoff a business man in the trading space has now created his own brokerage firm. Ugh! He seems to make money in creating businesses with in the trading space as he has been on the wrong side of the market as a trader for the past 6 years. It seems he wants all commissions instead of a portion hence his relationship with TD Ameritrade. Thoughts?
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