It's not always easy to take the measure of a market, whether you've been trading for a day or a decade. On this segment we look under the hood—options probabilities, volatility, trading strategies, futures, you name it—so your trading mechanics are built to manage more winners.
Testing Multiple Occurrences
How does maximizing occurrences level out risk in a portfolio?
Maximizing the number of occurrences brings total results closer to what is expected statistically.
This leads to greater consistency in both P/L and win rates. tastytrade explains with a 15 year analysis.
The chance of a complete reversal in the market after a 2% or greater daily move in either direction is just 1% (over 20 years). The chance of a reversal after a selloff is twice as likely as a reversal after a rally of the same size. Since the chance of a 2%+ close is 9%, and the chance of a 2%+ move and reversal that same day is 1%, then for every nine 2%+ closes, expect to see one 2%+ move followed by a reversal. Tune in as Tom and Tony utilize this information, applying it to recent market activity.
tastytrade discusses how the VIX responds to market down days in different volatility environments.
IV and Direction
NASDAQ’s price and IV have become much less inversely correlated over the last three months...dropping from its long term correlation of -0.75 to a much weaker -0.42.
Compared to the last ten years, the last three months have observed roughly twice the probability (on daily and weekly intervals) where both the NASDAQ and its IV go up together.
A Bit About Bitcoin
Soon a selection of cryptocurrencies will be available on the tastyworks platform.
Today we will dive into some statistics around one of the most popular cryptocurrencies, Bitcoin (BTC).
Join Tom and Tony as they look at correlations, historical volatilities, and the ideal ratio of BTC to SPY for gaining BTC exposure with minimal portfolio volatility.
2 Standard Deviation Reversal
Since this March, we have seen an increasing number of underlyings that have one-sided movement.
So, we may wonder how often and how quickly should we expect to see reversals after these extreme moves?
Tom and Tony examine a study done by the Research Team to see how common these occurrences can be. Tune in to see how duration can impact the results.