48 Minutes of Trading Advice You Wish You Knew Yesterday

00:48:36
https://www.youtube.com/watch?v=y0PNn89qw7U

概要

TLDRThe video provides a comprehensive guide to monitoring, adjusting, and managing trading positions. It emphasizes the importance of creating efficient watchlists that start with index futures followed by liquid equities ranked by implied volatility (IV) and liquidity. The role of implied volatility rank (IVR) is highlighted for deciding which positions to adjust or roll. It discusses the use of Greeks to understand risks and promotes consistent monitoring of positions using daily profit and loss (P&L) for insight. It details mechanics like rolling up or down untested sides of positions and rolling out in time to mitigate risk, advising against personalizing trade adjustments based on sentiment. The speaker stresses strategic optimization, the importance of capital efficiency, and diversification, advocating for a disciplined, research-trusting approach. The video underlines that understanding position Greeks, focusing on implications of IVR, and maintaining consistent trading guidelines are crucial for managing position risk effectively. Other key points include capital redeployment strategies to keep trading efficient and the importance of understanding relationship correlations within a portfolio. Overall, the video aims to instill good trading habits that emphasize risk management and systematic processes for improved trade longevity and success.

収穫

  • 📋 Create watchlists beginning with index futures then liquid equities ordered by IVR.
  • 📈 Monitor and rank positions by implied volatility rank (IVR) and liquidity.
  • 🔄 Use Greeks to understand risks and make informed trading adjustments.
  • 🛎 Follow mechanical processes for regular position adjustments and management.
  • 🧠 Trust research and strategic optimizations to compete effectively.
  • 🔍 Monitor daily P&L for quick insights into position performance.
  • 💼 Ensure portfolio diversification for reduced market correlation risks.
  • 💡 Consistently manage risks using disciplined approaches and market understanding.
  • 🎯 Focus on increasing credits and reducing Deltas when feasible.
  • 🧐 Be wary of hedging positions due to potential high costs.

タイムライン

  • 00:00:00 - 00:05:00

    The speaker introduces the topic of monitoring and managing positions, emphasizing the creation of an appropriate watch list. This list should prioritize front-month index futures due to their role in market liquidity and movement, followed by liquid equities with high options liquidity. The setup of watch lists and their composition is crucial for effective position management in trading platforms.

  • 00:05:00 - 00:10:00

    The importance of sorting watch lists by implied volatility rank (IVR) and liquidity is discussed. High IVR indicates positions to roll forward, while low IVR suggests closing them. Sorting by IVR helps in managing existing positions and portfolio, emphasizing consistency in trading habits to aid decision-making. Understanding native Greeks and their application without beta-weighting is stressed for clearer position management in equities and futures.

  • 00:10:00 - 00:15:00

    Discussing overall account risk management, the speaker suggests beta-weighting all position Greeks to the SPY for consistency. This section highlights the significance of having Deltas align with market assumptions and maintaining a reasonable Theta to net liquidation (net lick) ratio. The consistency and discipline in managing portfolio risk are reinforced as foundational to successful trading and investing.

  • 00:15:00 - 00:20:00

    The concept of managing positions early is emphasized to reduce risk and enhance returns. The practice of rolling positions and making necessary adjustments is encouraged to avoid significant portfolio volatility. The distinction between making defensive adjustments versus offensive ones is explained as part of a disciplined management approach, highlighting that managing trades early can lead to more favorable outcomes.

  • 00:20:00 - 00:25:00

    Adjusting positions involves rolling up or down on untested sides, reentering to manage Deltas and reducing Gamma risk, and rolling out in time to manage calendars. These methods apply to equities, ETFs, futures, and options across markets. The speaker discourages adding to losing positions and stresses the importance of sticking to disciplined mechanical strategies rather than emotional decision-making.

  • 00:25:00 - 00:30:00

    The segment covers the mechanics of rolling positions, stressing not to personalize trading decisions. Strategic optimization and consistency ensure effective portfolio management. The role of being counterintuitive, focusing on efficiency, managing risk, and maintaining discipline in trading methods are highlighted. Trusting research and systematic trading practices helps manage the complexities of trading.

  • 00:30:00 - 00:35:00

    Rolling strategies should be applied early and regularly to manage risk effectively. Rolling reduces volatility and can eliminate outlier risks, optimizing portfolio management. Timing and systematic approaches contribute significantly to risk mitigation and successful portfolio management. A diversified approach in managing position durations and adapting to market conditions maintains the balance between risk and opportunity.

  • 00:35:00 - 00:40:00

    The section on redeploying capital emphasizes continual engagement and activity in portfolio management. Strategic product indifference and leveraging capital efficiency foster better trading decisions. A diversified, uncorrelated portfolio provides a platform for consistent, manageable activity levels, ensuring portfolio robustness and adaptability across varied market conditions.

  • 00:40:00 - 00:48:36

    The final segment addresses return expectations and scalability of trading. It suggests aiming for returns significantly above risk-free rates, leveraging Theta harvesting, and understanding scalability post proving concept. Scaling investments significantly speeds wealth creation, emphasizing the need for a disciplined, concept-proven approach in active trading to achieve long-term financial success.

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ビデオQ&A

  • What is the main focus of the video?

    Understanding and managing trading positions by setting up watchlists and using mechanics like rolling and adjusting positions.

  • How should you set up a watchlist for trading?

    Start with front-month index futures in descending order, followed by highly liquid equities, organized by IVR and liquidity.

  • Why are implied volatility ranks (IVR) important?

    IVR helps in identifying which positions might need adjusting or rolling, as it indicates where implied volatility is relative to itself.

  • How can Greeks help in managing positions?

    Greeks help in understanding and monitoring risks in options, enabling better decision-making for adjusting positions.

  • What are the three Rs mentioned in the video?

    Rolling up or down the untested side, reentering positions, and rolling out in time to manage risks and positions.

  • Why is monitoring daily P&L important?

    It provides a quick check on position performance, revealing significant losses or gains that might need addressing.

  • How should one approach adjusting and closing positions?

    Follow a mechanical process without hesitating due to market predictions, and adjust based on metrics like IVR and Greeks.

  • What is the role of strategic optimization in trading?

    Strategic optimization involves using researched strategies consistently to compete effectively in any market.

  • How can capital efficiency and diversification impact trading?

    They allow for more flexible positioning and reduce risks, as non-correlated products enhance diversification.

  • What is the recommended approach to trading based on the video?

    Be mechanical, disciplined, use consistent strategies, trust research, and manage risks through proper market understanding.

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  • 00:00:00
    so for today I'm going to talk about
  • 00:00:02
    monitoring your positions how to set
  • 00:00:04
    that up how to do that adjusting your
  • 00:00:07
    positions closing and rolling those
  • 00:00:10
    positions and redeploying capital okay
  • 00:00:15
    for starters I think you know this
  • 00:00:17
    sounds this is going to sound a little
  • 00:00:19
    beginner likee but you wouldn't believe
  • 00:00:23
    how many questions we get about
  • 00:00:26
    practical watch lists and acable
  • 00:00:28
    actionable watch lists in fact until
  • 00:00:30
    we've kind of re-engineered the way
  • 00:00:33
    people look at Futures and and equities
  • 00:00:37
    I don't think most people understand
  • 00:00:39
    kind of or I don't think most people
  • 00:00:41
    that trade really understand the role of
  • 00:00:43
    kind of like what where your ey should
  • 00:00:45
    focus on so the first thing when
  • 00:00:47
    building um when when looking at your
  • 00:00:49
    platform and deciding hey how am I going
  • 00:00:52
    to manage my positions well I think it's
  • 00:00:56
    super important to build a watch list
  • 00:00:59
    every platform has a watch list on it
  • 00:01:01
    the problem that most people make with
  • 00:01:02
    watch lists are they follow the stocks
  • 00:01:03
    that they like and on a day like today
  • 00:01:06
    you might find some NASDAQ stocks lower
  • 00:01:08
    you might find some other stocks higher
  • 00:01:09
    but you're not really sure what's going
  • 00:01:11
    on so watch list should start with the
  • 00:01:14
    front month index Futures in descending
  • 00:01:17
    order so and I I know I'm being very
  • 00:01:20
    specific here and very particular but
  • 00:01:23
    you have to understand what drives
  • 00:01:25
    markets and what moves markets are the
  • 00:01:28
    index Futures as that's the largest most
  • 00:01:31
    liquid pool of liquidity in the world
  • 00:01:34
    and it's and when we say it's it's the
  • 00:01:35
    most Capital efficient pool of liquidity
  • 00:01:38
    so big money will flow into
  • 00:01:40
    institutional money retail money
  • 00:01:42
    whatever it is it will flow into index
  • 00:01:43
    Futures which will move the market and
  • 00:01:45
    the stocks will follow so on your watch
  • 00:01:47
    list and also Futures are
  • 00:01:49
    245 so from Sunday night at 5 o'clock
  • 00:01:53
    till Friday night basically at 5:00
  • 00:01:55
    we're talking about um the Futures
  • 00:01:57
    markets are open and what's important
  • 00:01:59
    about that is it gives you a really good
  • 00:02:01
    idea of what is driving the equity
  • 00:02:03
    markets so what I do is I start with for
  • 00:02:05
    example es which are the S&P 500s NQ
  • 00:02:08
    which are the NASDAQ you know ym which
  • 00:02:10
    is the Dow or rty which is the Russell
  • 00:02:13
    start with those four and then list
  • 00:02:15
    other liquid Futures below that that's
  • 00:02:17
    how you start to build a watch list and
  • 00:02:20
    then following that you want to put all
  • 00:02:24
    your liquid equities Now liquid equities
  • 00:02:28
    mean that the options are probably liid
  • 00:02:30
    sometimes you'll find an option
  • 00:02:31
    Marketplace that's super liquid when the
  • 00:02:33
    equity itself or the index isn't really
  • 00:02:35
    that liquid but it's rare So what I do
  • 00:02:38
    is following in descending order
  • 00:02:41
    following my
  • 00:02:42
    Futures okay I will then and I will list
  • 00:02:44
    them in groups like you know I will put
  • 00:02:46
    gold silver next to gold I'll put 10e
  • 00:02:49
    notes next to bonds that kind of thing
  • 00:02:51
    but then following that I will list
  • 00:02:53
    equities most liquid equities first like
  • 00:02:55
    you'll probably start off with you know
  • 00:02:57
    the top seven or eight most actively
  • 00:02:59
    traded under L and then all the way down
  • 00:03:01
    to let's call it the first I don't know
  • 00:03:03
    could be 75 to 200 it doesn't really
  • 00:03:05
    matter on a separate tab you should also
  • 00:03:09
    have your positions if you're on a
  • 00:03:11
    platform that doesn't support watch
  • 00:03:13
    lists that include you know that that
  • 00:03:15
    have give you the flexibility to set
  • 00:03:17
    these up and have Futures followed by
  • 00:03:20
    equities and then also a separate one
  • 00:03:22
    with positions then you really need to
  • 00:03:24
    consider a different trading platform
  • 00:03:27
    because you it's almost imp possible in
  • 00:03:30
    2024 to trade without understanding what
  • 00:03:34
    the Futures markets are doing and
  • 00:03:36
    understanding you know how the option
  • 00:03:37
    markets relate to the Futures markets
  • 00:03:39
    being able to follow it all with make
  • 00:03:41
    eye contact with that and then also
  • 00:03:43
    being able to flip quickly to your
  • 00:03:44
    position to a list of all your positions
  • 00:03:47
    and then what's super important and
  • 00:03:50
    what's something that that I I'm excited
  • 00:03:53
    about the way technology has developed
  • 00:03:55
    since the early days of you know the
  • 00:03:57
    early days of when we were building
  • 00:03:58
    thinkers some to where we are today with
  • 00:03:59
    tasty um we we've come a long way and we
  • 00:04:04
    now can take our watch list and sort
  • 00:04:06
    watch lists by just you know pretty much
  • 00:04:08
    50 or 60 different different things and
  • 00:04:11
    if you learn to sort by ivr and
  • 00:04:14
    liquidity it really helps and what I
  • 00:04:16
    posted here on the first slide was just
  • 00:04:18
    an example of sorting by ivr and
  • 00:04:20
    liquidity so for example these are um
  • 00:04:24
    seven different stocks which I have some
  • 00:04:26
    positions in Boeing meta smci Google AMD
  • 00:04:29
    Nvidia and mu but what I did was I
  • 00:04:32
    sorted these not by an alphabetical
  • 00:04:35
    order or anything like that but I sorted
  • 00:04:37
    these by IV Rank and then I also
  • 00:04:39
    included the next column over by
  • 00:04:41
    liquidity so you can see like some have
  • 00:04:43
    a two star liquidity some have three
  • 00:04:44
    star some have four star liquidity you
  • 00:04:46
    know Google and AMD with fourstar
  • 00:04:47
    liquidity I would argue right now Nvidia
  • 00:04:49
    easily has four-star liquidity but some
  • 00:04:52
    like smci might have two star liquidity
  • 00:04:54
    what's interesting about this is on
  • 00:04:56
    different platforms now you can sort by
  • 00:04:58
    liquidity if you want but I always sort
  • 00:05:00
    by IV rank because I want to know where
  • 00:05:04
    implied volatility is relative to itself
  • 00:05:07
    when I am a holding positions or B
  • 00:05:10
    putting on new positions because today's
  • 00:05:13
    segment is on managing existing
  • 00:05:15
    positions managing your portfolio what I
  • 00:05:17
    want to know is in my open in my list of
  • 00:05:20
    open positions which has the highest
  • 00:05:23
    implied volatility rank because those
  • 00:05:25
    are the ones I'm going to roll forward
  • 00:05:26
    so if I looked at this for example I
  • 00:05:28
    look at Boeing I say okay definitely
  • 00:05:30
    rolling that forward now all of these
  • 00:05:31
    are high so they're all plus 50 so all
  • 00:05:33
    of these I'm going to roll forward but
  • 00:05:36
    sometimes you'll find one where the IV
  • 00:05:38
    rank is in single digits like you might
  • 00:05:40
    have a spy position on where the IV rank
  • 00:05:41
    is eight or you might have another
  • 00:05:43
    position on like bonds where the IV rank
  • 00:05:46
    is one in those cases you're probably
  • 00:05:49
    not going to roll those positions
  • 00:05:50
    forward you might close those positions
  • 00:05:53
    being able to set your watch lifts up
  • 00:05:57
    and to be able to sort it by ivr lets
  • 00:05:59
    you immediately know which stocks in
  • 00:06:03
    your portfolio you are going to roll and
  • 00:06:06
    which stocks you are going to
  • 00:06:09
    close and you know it can also give you
  • 00:06:11
    an idea based on liquidity can also give
  • 00:06:12
    you an idea based on p&l but IV rank is
  • 00:06:15
    the simplest and most consistent and we
  • 00:06:18
    are we are fighting today for
  • 00:06:20
    consistency this is all about
  • 00:06:22
    consistency now a lot of these slides
  • 00:06:24
    are a little heavy because I included a
  • 00:06:26
    ton of information on these especially
  • 00:06:27
    the first few so just be with me if
  • 00:06:30
    these are if it's new to you or it's or
  • 00:06:32
    it's a little difficult don't worry
  • 00:06:34
    everything we do is designed to be
  • 00:06:36
    challenging but I think if you once you
  • 00:06:38
    see it enough and there's enough
  • 00:06:40
    repetition it will make a lot of sense
  • 00:06:43
    so the next thing I want when you're
  • 00:06:45
    when you're deciding how you're going to
  • 00:06:47
    manage your position you've got to do a
  • 00:06:49
    quick scan of the individual Greeks
  • 00:06:51
    whether you have on and your pnls
  • 00:06:53
    whether you have on one position five
  • 00:06:56
    positions 10 positions or 80 positions
  • 00:06:59
    it does doesn't matter so what we do is
  • 00:07:01
    we use native Greeks the those are
  • 00:07:04
    non-ba weighted for Equity options
  • 00:07:08
    Equity option positions and our Equity
  • 00:07:10
    index positions I'll get to Futures in
  • 00:07:13
    one second but we use native Greeks that
  • 00:07:15
    means non-ba weighted for Equity options
  • 00:07:18
    indexes this is not our total this is
  • 00:07:20
    just our individual positions now the
  • 00:07:22
    reason I'm telling you this is because
  • 00:07:23
    people get very confused when they beta
  • 00:07:25
    weight everything to the Spy and they
  • 00:07:27
    get very confused when they when
  • 00:07:29
    individual positions are beta weighted
  • 00:07:31
    to the Spy because it looks a little
  • 00:07:32
    weird but that's why we use the native
  • 00:07:35
    Greeks non-ba weighted for Equity
  • 00:07:37
    options ETFs and indexes if possible and
  • 00:07:41
    this is not available on every platform
  • 00:07:42
    but it is available on tasty we use ETF
  • 00:07:46
    Greeks for all Futures positions and all
  • 00:07:49
    Futures options positions so we allow
  • 00:07:51
    you to compare apples to apples I feel
  • 00:07:54
    this was an very important adjustment we
  • 00:07:56
    made to the platform and what it allows
  • 00:07:58
    you to do is have a position on in
  • 00:08:00
    Nvidia have a position on in IBM have a
  • 00:08:04
    position on for example in let's just
  • 00:08:06
    say in Reddit and compare that to a
  • 00:08:09
    position in the snps and a position in
  • 00:08:12
    crude oil because everything is set to
  • 00:08:16
    an equity equivalent because Futures on
  • 00:08:19
    their own get very complicated when you
  • 00:08:21
    take a Futures Greek because it has
  • 00:08:24
    different multipliers so if you want to
  • 00:08:26
    normalize Futures and make them a part
  • 00:08:29
    of your portfolio which I think is
  • 00:08:31
    incredibly important a for Capital
  • 00:08:33
    efficiency which is the main thing but
  • 00:08:36
    it's it's Capital efficiency and also
  • 00:08:39
    because they are non-correlated so we'
  • 00:08:41
    love you to do is to include Futures and
  • 00:08:44
    Futures options positions along with
  • 00:08:47
    your Equity positions but in order to
  • 00:08:49
    compare apples to apples what we do is
  • 00:08:52
    we normalize everything by using native
  • 00:08:55
    non-ba weighted Greeks for for
  • 00:08:57
    individual equities and then for futures
  • 00:09:00
    we convert everything to their Equity
  • 00:09:04
    equivalent so for example es would be
  • 00:09:06
    converted to spy but as you see below
  • 00:09:09
    fruit oil is converted to
  • 00:09:11
    Uso because then we can con we can
  • 00:09:13
    convert Uso to spy in in the big picture
  • 00:09:16
    and it's much simpler now for p&l and
  • 00:09:19
    this is what also confused a lot of
  • 00:09:21
    people and I know I'm kind of going over
  • 00:09:22
    stuff that you like thinking wow I've
  • 00:09:24
    never heard this before because nobody
  • 00:09:25
    really covers this stuff but for p&l you
  • 00:09:29
    should default to a daily p&l for your
  • 00:09:31
    individual underlyings your overall
  • 00:09:33
    totals you're always going to use daily
  • 00:09:35
    p&l but for individual underlyings I
  • 00:09:37
    also use daily p&l a lot of people look
  • 00:09:39
    at open p&l and a lot of people look at
  • 00:09:42
    different other kinds of p&l like could
  • 00:09:44
    be individual position pnl stuff like
  • 00:09:46
    that what you should look at is daily
  • 00:09:47
    p&l for the individual positions daily
  • 00:09:49
    p&l for individual underlying because it
  • 00:09:51
    quickly tells you if a position you have
  • 00:09:53
    on is out of whack meaning the Deltas
  • 00:09:55
    are too far off because you're losing
  • 00:09:56
    more money you should or you're making
  • 00:09:58
    more money whatever it is but if you
  • 00:10:00
    have a p&l number that looks out of
  • 00:10:02
    whack compared to everything else then
  • 00:10:04
    you'll know it immediately by looking at
  • 00:10:06
    your p&l you can also tell by looking at
  • 00:10:07
    your Greeks and your Delta and maybe
  • 00:10:09
    your Theta but your Delta for sure but
  • 00:10:11
    your p&l will confirm everything it
  • 00:10:13
    gives you kind of that instant
  • 00:10:15
    confirmation also you need to develop
  • 00:10:19
    consistent comfortable guidelines for
  • 00:10:22
    managing your daily risk because some
  • 00:10:24
    people will look at it all day long some
  • 00:10:26
    people will log on 10 times a day some
  • 00:10:27
    people look at it once a day some people
  • 00:10:29
    look at once a week and whatever that is
  • 00:10:32
    okay you have to be consistent and you
  • 00:10:34
    have to have guidelines and manageable
  • 00:10:36
    positions that fit within that on the
  • 00:10:38
    right hand side of this page you see I
  • 00:10:40
    put a couple of symbols coinbase for
  • 00:10:42
    example my p&l let's just say today is
  • 00:10:44
    $125 plus and the position Delta it's an
  • 00:10:48
    individual position Delta those are coin
  • 00:10:50
    Deltas those those are not converted to
  • 00:10:53
    spy is 15 Del long 15 Deltas in the yes
  • 00:10:57
    my p&l is down $50 now those converted
  • 00:11:00
    to spy equals 30 spy Deltas not es
  • 00:11:03
    Deltas but spy Deltas CL which is crude
  • 00:11:06
    oil I converted those with a plus 100
  • 00:11:09
    p&l I converted those to Uso Deltas to
  • 00:11:11
    make it simple because you understand
  • 00:11:13
    that and Nvidia the same thing to 35
  • 00:11:16
    individual Nvidia Deltas now you'll see
  • 00:11:18
    what we do with those in a second but
  • 00:11:20
    this gives you some background for
  • 00:11:21
    developing again first thing I want to
  • 00:11:24
    do is make sure you do the watch list
  • 00:11:25
    right second thing make sure you set up
  • 00:11:27
    your Greeks right and you're looking at
  • 00:11:29
    the thing which is your daily p&l and
  • 00:11:31
    everything is is set up and converted to
  • 00:11:34
    what it should look like so that you are
  • 00:11:36
    comparing Apples to
  • 00:11:38
    Apples so on the next slide we're going
  • 00:11:41
    to now start looking at your overall
  • 00:11:42
    account risk because you don't know what
  • 00:11:46
    to monitor in your positions until you
  • 00:11:48
    know how your overall account risk is
  • 00:11:51
    looking and how you're doing so here's
  • 00:11:53
    where we combine all the position Greeks
  • 00:11:56
    and we beta weight everything to the Spy
  • 00:11:58
    now could you beta weight to the to the
  • 00:12:00
    es or the mees or could you beta weight
  • 00:12:03
    to the SPX and the answer is yes but we
  • 00:12:06
    don't we don't for consistency we don't
  • 00:12:09
    because otherwise people get really
  • 00:12:11
    confused and when people say hey my
  • 00:12:13
    position is X or my position is why it's
  • 00:12:16
    because everybody's been beta weighted
  • 00:12:17
    to different things so to simplify
  • 00:12:19
    everything we just beta weight
  • 00:12:20
    everything to the Spy it makes it
  • 00:12:22
    normalizes everything it commoditized
  • 00:12:24
    everything but you need to know the
  • 00:12:26
    relationship between the spy and the SPX
  • 00:12:29
    the Spy is one10 the size of the SPX you
  • 00:12:32
    need to know the relationship between
  • 00:12:35
    the spy and Es the es is 1/ half the
  • 00:12:38
    size of the SPX so the es is one5 the
  • 00:12:41
    size is I'm sorry the es is five times
  • 00:12:43
    the size of spy and the mees is one10
  • 00:12:46
    the size of the es once you understand
  • 00:12:49
    those they're all the same product so
  • 00:12:51
    before we go off and and think oh my God
  • 00:12:53
    these are all different no they're not
  • 00:12:54
    they're all the same product the spy and
  • 00:12:56
    the SPX I mean they all have their
  • 00:12:57
    little nuances they all might have a
  • 00:12:59
    different they might have a different
  • 00:13:01
    like one has dividends one doesn't one
  • 00:13:03
    has the carry cost built in one doesn't
  • 00:13:06
    one has a different kind of settlement
  • 00:13:08
    than the other one all that kind of
  • 00:13:09
    stuff but the reality is they're all the
  • 00:13:11
    same they're all S&P 500 and once you
  • 00:13:14
    understand that the SPX is 10 times the
  • 00:13:15
    size of the Spy the es is five times the
  • 00:13:17
    size of the spy and the mees is one1 the
  • 00:13:20
    size of the es or the equivalent Mees is
  • 00:13:24
    the equivalent of 50 shares of spy so
  • 00:13:26
    two Mees equal one spy that that allows
  • 00:13:29
    you to normalize your portfolio risk
  • 00:13:31
    because you can convert it into anything
  • 00:13:33
    you want then what we do is we look at
  • 00:13:35
    our Theta number we're not going to get
  • 00:13:36
    into all the Greeks we're just going to
  • 00:13:38
    look at Delta because you have your beta
  • 00:13:40
    weighted Deltas now everything is beta
  • 00:13:41
    weighted to the Spy and then we're going
  • 00:13:43
    to look and we're going to see and and
  • 00:13:45
    we're going to understand a reasonable
  • 00:13:47
    daily Theta to net lick ratio you can't
  • 00:13:50
    manage a portfolio unless you know what
  • 00:13:52
    you're looking for so I'm going to get
  • 00:13:54
    into that in one second and then also we
  • 00:13:56
    want to make sure that your Deltas are
  • 00:13:58
    in line with your Market Marketplace
  • 00:13:59
    assumptions so for example if you are
  • 00:14:02
    bullish and you are short Deltas your
  • 00:14:05
    Deltas are not in line with your
  • 00:14:06
    Marketplace assumption if you are
  • 00:14:08
    bearish and you are long Deltas your
  • 00:14:10
    Deltas are not in line with your
  • 00:14:11
    Marketplace assumption so what you want
  • 00:14:13
    to do is make sure your Deltas are in
  • 00:14:15
    line with your Marketplace assumptions
  • 00:14:17
    and then make sure that your daily data
  • 00:14:20
    to your net lick not to your buying
  • 00:14:22
    power not to something else but to your
  • 00:14:24
    net lick because that's the easiest way
  • 00:14:25
    to do it and to make it consistent is
  • 00:14:27
    going to be some reasonable number what
  • 00:14:29
    is a reasonable number well it's hard to
  • 00:14:31
    tell based on different account sizes
  • 00:14:33
    but what we've come up with in all our
  • 00:14:35
    modeling is that the total portfolio
  • 00:14:38
    Theta um divided by net lick or relative
  • 00:14:42
    to net lick should be 1110th to onethird
  • 00:14:45
    or 10 to 30 basis points of your net
  • 00:14:49
    lick okay so if you're at 1% if your net
  • 00:14:52
    lick for example is
  • 00:14:54
    $100,000 and you have a $100,000 and you
  • 00:14:57
    have $1,000 of daily decay you have way
  • 00:14:59
    too big a position but if you have $200
  • 00:15:02
    of daily Decay on a $100,000 position
  • 00:15:04
    you're right dead smack in the middle of
  • 00:15:06
    where we think you should
  • 00:15:07
    be now again these are generalizations
  • 00:15:11
    but this comes from 13 years worth of
  • 00:15:12
    research so we feel pretty confident in
  • 00:15:16
    our numbers and all the stuff that we
  • 00:15:17
    study we're going to talk a little bit
  • 00:15:19
    later about what your expectations
  • 00:15:20
    should be around that but from 1110th to
  • 00:15:23
    1/3 is kind of a reasonable Theta to net
  • 00:15:26
    lick expectation or where you should be
  • 00:15:31
    and the last piece here be mechanical
  • 00:15:33
    take a disciplined approach to managing
  • 00:15:35
    your positions like don't overthink this
  • 00:15:38
    don't say oh this stock's down so I'm
  • 00:15:40
    not going to adjust my position because
  • 00:15:42
    I think it's going to Rally back up
  • 00:15:43
    that's how you get in a lot of trouble
  • 00:15:45
    or this Stock's up and I think it's
  • 00:15:46
    going to go back down so I'm not going
  • 00:15:47
    to roll up my puts or do whatever that's
  • 00:15:49
    how you get in trouble so don't do that
  • 00:15:51
    just be mechanical you have to take a
  • 00:15:52
    discipline approach and you have to kind
  • 00:15:54
    of clear your head but you always need
  • 00:15:57
    to know your next step so one of the
  • 00:15:59
    keys to managing a portfolio is knowing
  • 00:16:01
    what you're going to do next don't sit
  • 00:16:03
    there and think oh man oh man let me go
  • 00:16:05
    back and rewatch this this video go let
  • 00:16:08
    me go back and rewatch this webinar you
  • 00:16:10
    need to know what your next step is you
  • 00:16:11
    need to know based on what strike you
  • 00:16:13
    already have what your next strike is
  • 00:16:15
    you need to know based on what
  • 00:16:16
    expiration you're in are you going to
  • 00:16:17
    stay in that same expiration are you
  • 00:16:18
    going to roll to another expiration our
  • 00:16:21
    default adjustment you've heard me say
  • 00:16:22
    this many times before our default
  • 00:16:24
    adjustment is always earlier is better
  • 00:16:28
    earlier is better there is never a time
  • 00:16:31
    when later is better now of course
  • 00:16:34
    sometimes I shouldn't say never because
  • 00:16:35
    sometimes if you wait sure you get lucky
  • 00:16:37
    things like that but the default should
  • 00:16:39
    always be ear if you're if you're
  • 00:16:40
    undecided earlier is better and assume
  • 00:16:45
    you will meet risk expectations or
  • 00:16:47
    reduce you know or you have to reduce
  • 00:16:50
    your position size now down below what
  • 00:16:52
    we did is we put just together a little
  • 00:16:54
    example showing what happens when you
  • 00:16:55
    manage early verse what happens when you
  • 00:16:57
    hold to expiration and you can see the
  • 00:16:59
    pop is higher a little bit higher one
  • 00:17:01
    one or two% when you hold to expiration
  • 00:17:03
    but the average daily p&l is actually
  • 00:17:05
    higher when you manage your trades early
  • 00:17:06
    and your p&l volatility is a third and
  • 00:17:09
    your SAR which is your outlier risk
  • 00:17:12
    drops by
  • 00:17:13
    2/3 what do we care about when we're
  • 00:17:15
    trading and managing a portfolio we care
  • 00:17:17
    about our outlier risk we care about our
  • 00:17:21
    three our two standard deviation risk
  • 00:17:22
    which is basically what your crar is
  • 00:17:24
    that's conditional value of risk we care
  • 00:17:26
    about the volatility of your portfolio
  • 00:17:28
    which which is how big are your intraday
  • 00:17:30
    swings if you can reduce your intraday
  • 00:17:31
    swings by 2/3 and your outlier Risk by
  • 00:17:34
    2/3 you manage early and increase your
  • 00:17:36
    daily p&l you manage early that's it
  • 00:17:39
    Case Closed there is no other argument
  • 00:17:41
    to be made here for this I'm going to
  • 00:17:44
    keep moving ahead so I keep this keep us
  • 00:17:45
    on pace so the next piece and again if
  • 00:17:49
    you have any questions I'm Tom at
  • 00:17:51
    tasty.com and there are three people on
  • 00:17:53
    answering questions today and I'll give
  • 00:17:55
    you some other information at the end of
  • 00:17:56
    the event okay the next piece is called
  • 00:18:00
    adjusting your positions right we're
  • 00:18:02
    going to adjust positions
  • 00:18:05
    so this is where sometimes it gets a
  • 00:18:08
    little confusing and and listen this is
  • 00:18:09
    why we're doing a two-hour and 45 minute
  • 00:18:11
    show with six different speakers and the
  • 00:18:14
    six speakers are Nikki Batista Mike
  • 00:18:16
    Butler Katie mcgo um Jamal Chandler
  • 00:18:19
    myself and uh Pete mad so this is like
  • 00:18:23
    you know this is as good as we've got so
  • 00:18:26
    I think you know you're going to get
  • 00:18:27
    lots of different perspectives and you
  • 00:18:29
    know I would do my best to get out and
  • 00:18:32
    make it to one of these events um the
  • 00:18:34
    first thing the don't forget the three
  • 00:18:37
    Rs roll up or down the untested side to
  • 00:18:41
    reduce Delta so when you're going
  • 00:18:42
    through your positions you look at the
  • 00:18:43
    market just opened and you're looking at
  • 00:18:45
    your positions and you see that your
  • 00:18:47
    Deltas are a little out of whack in one
  • 00:18:49
    underline like you think you should be
  • 00:18:51
    flat but now all of a sudden you're
  • 00:18:52
    short 200 Deltas then what you're going
  • 00:18:54
    to do is and assuming you have a put end
  • 00:18:56
    call position on you're G to take that
  • 00:18:58
    put position whether it's a spread or
  • 00:19:00
    whether it's a naked put and you're
  • 00:19:02
    going to roll it up we call that rolling
  • 00:19:05
    up the untested side the tested side is
  • 00:19:07
    the side that's being challenged that's
  • 00:19:08
    creating the Deltas but you're going to
  • 00:19:10
    touch that you're only going to touch
  • 00:19:11
    the untested side if we're going down
  • 00:19:14
    and you're picking up too many long
  • 00:19:16
    Deltas you're going to take your call
  • 00:19:17
    side and roll your calls side down we
  • 00:19:19
    call that rolling down the next thing we
  • 00:19:21
    do is if we get a little bit too close
  • 00:19:23
    after a couple of rolls we call this
  • 00:19:26
    reentering which is done to reduce Delta
  • 00:19:29
    and to lower your gamma risk what that
  • 00:19:31
    is is you buy the guts that's the that's
  • 00:19:33
    the that's the two nearest to at the
  • 00:19:36
    money strikes and then you buy those
  • 00:19:38
    back in a single click you sell out the
  • 00:19:40
    wings if your platform doesn't support
  • 00:19:43
    that functionality in a single click
  • 00:19:45
    change your platform because that's old
  • 00:19:47
    technology that doesn't that's not even
  • 00:19:49
    viable in 2024 and the next thing is
  • 00:19:53
    rolling out in time so rolling out in
  • 00:19:55
    time means going from the current month
  • 00:19:57
    to the next month now all of these apply
  • 00:20:00
    to listed options ETFs
  • 00:20:04
    indexes Futures options okay same thing
  • 00:20:07
    there is no difference if you're trading
  • 00:20:09
    crude oil es options NQ options if
  • 00:20:13
    you're trading natural gas options if
  • 00:20:15
    you're trading uh copper options or if
  • 00:20:17
    you're trading soybeans or bonds or or
  • 00:20:21
    node options they're all the same thing
  • 00:20:23
    you roll up or down the untested side
  • 00:20:25
    you reenter with one click buy the guts
  • 00:20:28
    and sell the wing or you roll out in
  • 00:20:30
    time calendar if we call that
  • 00:20:32
    calendarize the trade so you move the
  • 00:20:34
    trade out to the next cycle in the
  • 00:20:35
    future's world we call it moving to the
  • 00:20:37
    active month in the listed world we call
  • 00:20:39
    it we call it calendarized the trade
  • 00:20:41
    that reduces your risk by about 30%
  • 00:20:44
    calendarized a trade reduces Risk by 30%
  • 00:20:47
    so again the three Rs rolling up or down
  • 00:20:50
    the untested side reentering and then
  • 00:20:52
    rolling out in time and remember the
  • 00:20:54
    rules of thumb always get comfortable
  • 00:20:57
    doing this early and always be
  • 00:20:59
    comfortable taking profits and do not
  • 00:21:02
    add to losing positions one of the
  • 00:21:05
    things we we get our we have egos and
  • 00:21:07
    our egos get in the way a lot and our
  • 00:21:08
    egos sometimes tell us hey you know what
  • 00:21:11
    I love this position but I just can't
  • 00:21:13
    believe it's going against me so I'm
  • 00:21:14
    going to do more unless you've done it
  • 00:21:15
    really small the first time and you have
  • 00:21:17
    a lot more room to go don't add to
  • 00:21:19
    losing positions you'll hang around this
  • 00:21:20
    business forever if you don't add to
  • 00:21:22
    losing positions soon as you start
  • 00:21:23
    adding losing positions it's over
  • 00:21:26
    because you can't recover from that so
  • 00:21:28
    um get comfortable taking profits manage
  • 00:21:30
    early don't add to losing positions and
  • 00:21:32
    don't forget the three
  • 00:21:34
    Rs so the next piece is don't
  • 00:21:38
    personalize the
  • 00:21:39
    mechanics what that means is and this is
  • 00:21:42
    a new kind of saying for us stay
  • 00:21:44
    disciplined and consistent honor the
  • 00:21:46
    research honor the discussions that
  • 00:21:48
    we're having today at least trust them I
  • 00:21:51
    shouldn't say honor I should have said
  • 00:21:52
    trust it well next time we say it's
  • 00:21:54
    trust the research but the reason for
  • 00:21:57
    that is because again we have these egos
  • 00:22:00
    we have we all have a very similar
  • 00:22:02
    personality Traders have this kind of
  • 00:22:04
    alpha like personality and it makes us
  • 00:22:08
    pigheaded and you must stay consistent
  • 00:22:11
    and you must trust the research so if
  • 00:22:14
    the suggestion is hey roll off the
  • 00:22:16
    onesti side roll off the onesti side if
  • 00:22:18
    it's roll down the onesti side roll down
  • 00:22:20
    the onesti side no no legging okay we
  • 00:22:23
    generally don't leg I mean if you leg
  • 00:22:25
    one time out of 10 fine if you leg one
  • 00:22:27
    time out of 20 one time out of a 100
  • 00:22:29
    fine I don't care of course we don't
  • 00:22:31
    care but if you get in the habit of
  • 00:22:33
    starting to leg every trade you're dead
  • 00:22:35
    dead meat it's not going to work and
  • 00:22:37
    don't get cute okay that means that
  • 00:22:40
    means don't say okay I'll do this first
  • 00:22:42
    and I'll leg into this side or I'll do
  • 00:22:43
    this and that you know like this is not
  • 00:22:46
    you don't get paid for being cute and
  • 00:22:48
    nobody cares how how you know if you
  • 00:22:50
    saved a penny or something so we call
  • 00:22:52
    that no hero stuff change the word my my
  • 00:22:56
    the word stuff you I usually was is n
  • 00:22:58
    that nice I changed it to a nice word so
  • 00:23:02
    don't get cute and no hero stuff and we
  • 00:23:05
    don't lag and then remember strategic
  • 00:23:09
    optimization works trust the research
  • 00:23:12
    the reason I do this the reason I do
  • 00:23:15
    this after all these years decades
  • 00:23:17
    whatever it is is because I want my
  • 00:23:20
    legacy to be that we have
  • 00:23:24
    created a platform of strategic
  • 00:23:27
    mechanics of strategic optimization that
  • 00:23:31
    allows individual investors
  • 00:23:33
    self-directed traders to compete with
  • 00:23:36
    anybody any time in any
  • 00:23:39
    Marketplace the world the the the world
  • 00:23:42
    of open outcry gone the world of
  • 00:23:44
    traditional quote professional traders
  • 00:23:46
    gone yeah sure there's high frequency
  • 00:23:47
    machines and everything else I don't
  • 00:23:49
    care about that the the world of of
  • 00:23:52
    self-direct investing self-directed
  • 00:23:54
    trading it's all about strategic
  • 00:23:56
    optimization you must optimize your
  • 00:23:59
    knowhow that is your true differentiator
  • 00:24:01
    so trust the
  • 00:24:04
    research so the next thing is to get
  • 00:24:07
    comfortable being
  • 00:24:08
    counterintuitive okay that's why we do
  • 00:24:10
    not adjust the test inside that's why we
  • 00:24:13
    focus on the untested side because it's
  • 00:24:17
    counterintuitive we focus on Capital
  • 00:24:19
    efficiency not always what seems like
  • 00:24:23
    the maybe the the best potential move
  • 00:24:26
    but the most Capital efficient move so
  • 00:24:28
    you're not throwing in good money after
  • 00:24:30
    bad we also always focus and this is
  • 00:24:33
    really important when you are managing
  • 00:24:35
    your positions and you're managing your
  • 00:24:36
    portfolio we focus on increasing the
  • 00:24:39
    credits and lowering Delta whenever it's
  • 00:24:42
    possible like I know positions go
  • 00:24:44
    against us I get it trust me I've had
  • 00:24:47
    millions of losing positions literally
  • 00:24:49
    millions of losing positions so I get
  • 00:24:51
    this increase credits whenever you can
  • 00:24:54
    which reduces risk and lower Delta when
  • 00:24:57
    you can and then don't add money or
  • 00:25:00
    contracts to trades that are not working
  • 00:25:02
    if something's not working okay it's not
  • 00:25:04
    working doesn't mean you have to close
  • 00:25:05
    it you can stay in you can fight the
  • 00:25:07
    good fight you can stay in you can
  • 00:25:09
    battle to The Bitter End but you're not
  • 00:25:11
    GNA add money to the trade which is how
  • 00:25:13
    which is you do that by increasing
  • 00:25:15
    credits not not not paying debits and
  • 00:25:18
    you do that by lowering Delta as much as
  • 00:25:19
    you can sometimes the stock wins
  • 00:25:22
    sometimes trades don't work so focus on
  • 00:25:25
    Capital efficiency be comfortable being
  • 00:25:27
    counter intuitive try not to adjust the
  • 00:25:30
    tested side ever now here's a nice
  • 00:25:32
    little slide here it shows that we're
  • 00:25:34
    looking at Short puts and we did it in
  • 00:25:37
    the spy and the es and this is what
  • 00:25:40
    capital efficiency is all about now I'm
  • 00:25:42
    never going to tell you hey just trade
  • 00:25:44
    spy or just trade es we trade it all we
  • 00:25:47
    love the fact that this event being
  • 00:25:49
    sponsored by both the CME which is which
  • 00:25:53
    is our primary Futures exchange and the
  • 00:25:56
    sibo which our primary option Exchange
  • 00:25:58
    is because everybody has certain
  • 00:26:00
    benefits there are great products at
  • 00:26:02
    both exchanges everybody has different
  • 00:26:04
    benefits in the case of Futures options
  • 00:26:06
    it's about Capital efficiency you can
  • 00:26:08
    see here for the same amount of money
  • 00:26:11
    you can make almost seven times as much
  • 00:26:14
    money so for the same $7,000 putting up
  • 00:26:17
    you know 52 days in the Spire or 63 days
  • 00:26:20
    in the es there is 226 in Max profit
  • 00:26:23
    vers $1,400 in Max profit that's one of
  • 00:26:25
    the advantage of understanding Capital
  • 00:26:27
    efficiency the are the same products
  • 00:26:29
    does that mean we only trade es options
  • 00:26:31
    of course not we trade spy all the time
  • 00:26:32
    for lots of different reasons but I'm
  • 00:26:35
    just showing you that is what we call
  • 00:26:37
    Nuance knowhow that is understanding
  • 00:26:39
    that your max profit could be as much as
  • 00:26:41
    six times greater that's what we talk
  • 00:26:42
    about with capital efficiency let's go
  • 00:26:45
    to next slide oops sorry here we go
  • 00:26:49
    so I call this do the right thing and do
  • 00:26:53
    the right thing is understanding that
  • 00:26:57
    sometimes the stock
  • 00:26:59
    wins sometimes you do everything right
  • 00:27:02
    everything freaking right you did you
  • 00:27:04
    made the right adjustments you rolled
  • 00:27:06
    out at all the right times you
  • 00:27:07
    neutralize your Delta and you know what
  • 00:27:09
    that damn stock won that damn future won
  • 00:27:13
    that commodity won you know what that
  • 00:27:15
    ETF one that index one sometimes they
  • 00:27:17
    win they gotta win everybody's got to
  • 00:27:20
    get their wins in there okay you have to
  • 00:27:23
    do the right thing you have to make the
  • 00:27:25
    painful defensive individual Delta
  • 00:27:28
    adjustments I I think I know better than
  • 00:27:30
    anybody when I'm short something and a
  • 00:27:32
    Stock's going up for me to make a
  • 00:27:34
    defensive Delta adjustment which means
  • 00:27:37
    which means to roll up puts is painful
  • 00:27:41
    but I've done it enough times to know
  • 00:27:43
    hey that is just the nature of this game
  • 00:27:47
    do not be afraid on the other hand to
  • 00:27:49
    make offensive adjustments you have a
  • 00:27:52
    good position on the IV rank is super
  • 00:27:54
    high you do not want to take the
  • 00:27:57
    position off you want to make an
  • 00:27:58
    offensive adjustment by for example
  • 00:28:01
    rolling down the calls you want to make
  • 00:28:03
    an offensive adjustment by rolling out
  • 00:28:05
    to the next month and keeping the
  • 00:28:06
    position on there is absolutely on a
  • 00:28:09
    position that you have going your way
  • 00:28:10
    there is absolutely nothing wrong with
  • 00:28:13
    making an offensive
  • 00:28:14
    adjustment now here's the key to this
  • 00:28:17
    though be careful when trying to hedge
  • 00:28:20
    because most people don't realize this
  • 00:28:23
    and people get really confused by the
  • 00:28:24
    term hedge hedging is extremely
  • 00:28:27
    difficult HED hedging is something I
  • 00:28:29
    rarely talk about because hedging you
  • 00:28:31
    pay a massive premium for hedging
  • 00:28:34
    hedging is like an insurance policy and
  • 00:28:36
    you pay a very rich premium for
  • 00:28:38
    insurance which doesn't come into play
  • 00:28:40
    very often so be careful be conservative
  • 00:28:44
    about your Hedges if you're hedging
  • 00:28:45
    something offensively go for it I'm
  • 00:28:48
    totally fine with that but if you're
  • 00:28:49
    hedging something defensively be careful
  • 00:28:52
    okay because you're probably going to
  • 00:28:54
    overpay so again just a quick little
  • 00:28:56
    reminder here sometimes a stock wins
  • 00:28:58
    just get that through your head make the
  • 00:29:00
    painful defensive individual Delta
  • 00:29:02
    adjustments it's something every Trader
  • 00:29:04
    has to do don't be afraid to make
  • 00:29:07
    offensive adjustments when you feel like
  • 00:29:09
    hey you're in a strong position and the
  • 00:29:11
    position is going your way and be
  • 00:29:13
    careful when trying to hedge be
  • 00:29:14
    reluctant to hedge unless you really
  • 00:29:16
    need to all right the next segment and
  • 00:29:19
    I'm moving along at a fast pace and I
  • 00:29:21
    hope you all are enjoying this I hope
  • 00:29:23
    you're all getting a lot out of this
  • 00:29:24
    like I said I just finished writing this
  • 00:29:26
    this past weekend so none of this I've
  • 00:29:28
    ever covered before in this kind of a
  • 00:29:29
    webinar so it's all new and I think it's
  • 00:29:31
    going to be really valuable and then
  • 00:29:33
    we're doing the bigger series all about
  • 00:29:35
    this I'm calling this segment closing
  • 00:29:37
    and rolling so when you have a position
  • 00:29:39
    on and you're trying to decide should I
  • 00:29:41
    close the position should I roll the
  • 00:29:43
    position should I roll it out to the
  • 00:29:44
    next month or should I close it what do
  • 00:29:46
    I do at 21dt what what what what what
  • 00:29:49
    what what what what what do I do closing
  • 00:29:51
    and
  • 00:29:52
    rolling okay so first of all why close a
  • 00:29:55
    position so let's say you're at the
  • 00:29:58
    optimal point in the Decay curve which
  • 00:30:00
    means you have all the factors working
  • 00:30:02
    for you that's why you close let's say
  • 00:30:05
    you've made the most on a daily basis of
  • 00:30:08
    what you can make and now the risk
  • 00:30:10
    reward is going to flip-flop a little
  • 00:30:13
    bit and you're going to take more risk
  • 00:30:14
    for Less reward why close the implied
  • 00:30:18
    volatility rank which when you put the
  • 00:30:20
    position on was quite high is now low
  • 00:30:23
    because the ibr has dropped because the
  • 00:30:25
    underlying has either moved or it did
  • 00:30:27
    what was going to do or had its earnings
  • 00:30:29
    whatever it was so the ivr's dro so it's
  • 00:30:31
    no longer an attractive
  • 00:30:32
    play why close it's a better use of
  • 00:30:36
    capital to redeploy it somewhere else
  • 00:30:39
    because for whatever reason it's just an
  • 00:30:40
    inefficient use of capital for example
  • 00:30:43
    I'm using spy now I can use es or Mees
  • 00:30:45
    whatever it is or I'm using Uso now I
  • 00:30:48
    can use CL for options there's just a
  • 00:30:50
    better use of capital somewhere else or
  • 00:30:52
    it's a different underlying altogether
  • 00:30:53
    I'm using CL options I want to go to
  • 00:30:55
    natural gas I'm using Bond options I
  • 00:30:57
    want to go to notes I'm using IBM
  • 00:31:00
    options I want to go to Qualcomm
  • 00:31:03
    whatever it
  • 00:31:04
    is and then lastly why close because the
  • 00:31:07
    underlying is no longer part of your
  • 00:31:09
    current assumption you were bearish now
  • 00:31:12
    you're bullish you were bearish now
  • 00:31:13
    you're neutral you were bullish now
  • 00:31:16
    you're neutral okay so or or the
  • 00:31:19
    underlying has reached whatever your
  • 00:31:21
    target was what is your target well it
  • 00:31:23
    should be at the expected move so when
  • 00:31:25
    you put a position on you know the
  • 00:31:26
    expected move is $10 if the underlying
  • 00:31:28
    move is $10 then you have to re-evaluate
  • 00:31:30
    hey went to the expected move I should
  • 00:31:32
    take my
  • 00:31:33
    profits so the next piece I wrote was
  • 00:31:36
    about why roll give yourself time to be
  • 00:31:40
    right that's why we roll we extend
  • 00:31:43
    duration we're always right but
  • 00:31:45
    sometimes we're like super early like
  • 00:31:48
    years days months weeks whatever it is
  • 00:31:51
    but you roll because you give yourself
  • 00:31:53
    time to be right we call that extending
  • 00:31:55
    duration rolling is the strong
  • 00:31:58
    defense without adding more Capital to a
  • 00:32:01
    position rolling reduces your risk buys
  • 00:32:05
    time and and doesn't require that you
  • 00:32:08
    add more Capital that's why you roll we
  • 00:32:11
    also roll because it reduces the
  • 00:32:13
    volatility of your portfolio by as much
  • 00:32:15
    as a third so when your portfolio let's
  • 00:32:17
    say has a $100 of risk a day if you roll
  • 00:32:20
    forward you reduce that risk because
  • 00:32:21
    you're adding duration by as much as $30
  • 00:32:25
    or as much as
  • 00:32:26
    30% and then rolling and this is the
  • 00:32:29
    real key here it virtually eliminates
  • 00:32:32
    all outlier risk can't eliminate you
  • 00:32:35
    know okay I'll take out the word
  • 00:32:36
    virtually it eliminates most of your
  • 00:32:39
    outlier risk in the case of the Spy
  • 00:32:41
    almost all of it but in the case of
  • 00:32:42
    individual equities a lot of it as you
  • 00:32:45
    can see here um when we we put a little
  • 00:32:49
    example at the bottom these are 20 Delta
  • 00:32:51
    strangles in the Spy the win rates are
  • 00:32:53
    about the same the wind rates never
  • 00:32:54
    change but the difference is that you
  • 00:32:57
    make more money and when you have 20
  • 00:33:01
    Delta strangles um well this actually
  • 00:33:03
    they didn't put that they didn't put
  • 00:33:04
    probably the best numbers in here for
  • 00:33:06
    you see but the the the the generally
  • 00:33:09
    speaking your outlier risk goes way down
  • 00:33:12
    you make more money your outlier risk
  • 00:33:13
    goes
  • 00:33:15
    down so does trade duration matter in
  • 00:33:19
    the process well for optimizing
  • 00:33:22
    mechanics the simple answer is yes for
  • 00:33:26
    theoretical Edge the answer there's no
  • 00:33:28
    so what does that mean does trade
  • 00:33:30
    duration matter and that means if you do
  • 00:33:33
    a trade that's one day out three days
  • 00:33:35
    out seven days out 14 days out 21 days
  • 00:33:37
    out or 45 days out there is no
  • 00:33:40
    difference in theoretical Edge you are
  • 00:33:42
    going to have the same the same let's
  • 00:33:44
    call it Penny round fair value in all
  • 00:33:47
    those cases there is no difference in
  • 00:33:48
    theoretical Edge the difference is with
  • 00:33:51
    optimization of mechanics the difference
  • 00:33:54
    is that you are at a better point in the
  • 00:33:56
    Decay curve when you give yourself
  • 00:33:59
    different levels of me of mechanics it's
  • 00:34:01
    very hard to manage a trade with one day
  • 00:34:03
    to go it's very hard to manage a trade
  • 00:34:06
    with one week to go it is a lot easier
  • 00:34:08
    to manage a trade with 45 days to go and
  • 00:34:10
    you live in a certain part of Decay
  • 00:34:11
    curve which is much more powerful for
  • 00:34:14
    you over
  • 00:34:16
    time also duration matters
  • 00:34:19
    because the Deltas move slower and hence
  • 00:34:23
    you have fewer adjustments when you have
  • 00:34:26
    longer durations when you have short
  • 00:34:28
    durations Delta moves really fast and
  • 00:34:30
    you have to make lots of different
  • 00:34:31
    changes when you move when you have
  • 00:34:33
    really longer durations Delta moves
  • 00:34:35
    really slow both your gamma risk and
  • 00:34:39
    your outlier risk are reduced I wouldn't
  • 00:34:41
    say they're reduced to nothing but
  • 00:34:43
    they're down they're they become minimal
  • 00:34:46
    if you if you add duration and then
  • 00:34:48
    adding duration this is a cool thing
  • 00:34:49
    adding duration synthetically increases
  • 00:34:53
    implied volatility in the longer dated
  • 00:34:54
    months so if you're looking around and
  • 00:34:56
    all the implied volatility underly
  • 00:34:57
    really want to trade is low you add
  • 00:34:59
    duration to it and it synthetically
  • 00:35:01
    increases the implied
  • 00:35:03
    volatility it's kind of crazy but that's
  • 00:35:05
    just the way the modeling works because
  • 00:35:06
    nobody knows what's going to happen in
  • 00:35:07
    the long term so those options will have
  • 00:35:09
    a tendency to stay higher and if you
  • 00:35:11
    look on the right hand side of the pat
  • 00:35:12
    here you can see with the 16 Delta put
  • 00:35:13
    53 days to go the gamma is
  • 00:35:16
    0.93 and then the gamma risk goes up by
  • 00:35:19
    5x when you go down to three three days
  • 00:35:21
    to go so there's five times less gamma
  • 00:35:25
    risk in from you know from 3 days to 53
  • 00:35:29
    days and that's just the whole argument
  • 00:35:31
    here you don't have to do everything at
  • 00:35:32
    45 or 50 or 60 or 30 or 40 days whatever
  • 00:35:35
    it is but just understanding that having
  • 00:35:38
    a diversified portfolio of underlyings
  • 00:35:40
    if you're trying to manage your
  • 00:35:41
    portfolio you're trying to manage all
  • 00:35:43
    positions with with one three and 7-Day
  • 00:35:45
    risk man you're in for a you are not in
  • 00:35:48
    for this that's no party but if you are
  • 00:35:50
    managing positions that are all over the
  • 00:35:52
    place you could have a three day you
  • 00:35:53
    could have a 7day you could have a 21
  • 00:35:54
    day you could have a bunch of 45 days
  • 00:35:56
    it's a lot easier to manage those
  • 00:36:00
    positions and then how critical is
  • 00:36:04
    timing because we know we can't time
  • 00:36:06
    what the Market's going to do so what is
  • 00:36:09
    what part of timing is critical well
  • 00:36:13
    you're attention to what you're doing
  • 00:36:16
    that's that timing piece is critical
  • 00:36:19
    your mechanics your timing with respect
  • 00:36:21
    to your mechanics that's critical what
  • 00:36:24
    what you what you can't do is time the
  • 00:36:27
    market
  • 00:36:28
    what you can do is time the amount of
  • 00:36:30
    attention you spend on something and
  • 00:36:32
    time the amount of attention you spend
  • 00:36:35
    to the
  • 00:36:36
    mechanics timing is synonymous with risk
  • 00:36:39
    reduction discipline because if you if
  • 00:36:43
    you want to be that risk disciplined
  • 00:36:47
    person okay then you have to have this
  • 00:36:49
    sense of timing attention to all that
  • 00:36:52
    stuff timing contributes to longevity
  • 00:36:56
    this is kind of a cool thing timing
  • 00:36:58
    contributes to longevity and Longevity
  • 00:37:01
    is the largest contributor to overall
  • 00:37:03
    success I do an entire um speech on this
  • 00:37:07
    which I love to give about
  • 00:37:09
    entrepreneurship there is a minuscule
  • 00:37:12
    difference between success on every
  • 00:37:16
    single level in every single industry
  • 00:37:18
    there is not a huge difference between
  • 00:37:20
    person number one on the on the depth
  • 00:37:23
    chart and person number 100 person
  • 00:37:25
    number 100 has a lot of C catching up to
  • 00:37:28
    do but most of it is based on your
  • 00:37:30
    ability to survive it's based on
  • 00:37:33
    longevity it's based on being able to
  • 00:37:35
    hang around for three four five decades
  • 00:37:37
    it's based on being able to there's
  • 00:37:39
    almost no such thing as overnight
  • 00:37:41
    success and trading is the same thing
  • 00:37:44
    trading success in the investment World
  • 00:37:46
    success in the trading world it's all
  • 00:37:48
    about longevity so you're your ability
  • 00:37:52
    to be attentive your ability to time the
  • 00:37:57
    amount time spent with respect to
  • 00:37:59
    mechanics your timing is synonymous with
  • 00:38:02
    risk reduction and success it's
  • 00:38:04
    synonymous with longevity and overall
  • 00:38:09
    success okay and I'm going to go into
  • 00:38:11
    the last piece here this is called
  • 00:38:14
    redeploying Capital so you have a
  • 00:38:17
    position on you have this entire
  • 00:38:18
    portfolio you've been managing you've
  • 00:38:20
    been doing everything you know we were
  • 00:38:22
    talking about it three different
  • 00:38:23
    sections you've been doing everything
  • 00:38:25
    according to the book man you're
  • 00:38:26
    mechanical as hell now and but now what
  • 00:38:28
    do you do what's the next step so how
  • 00:38:32
    active should you be meaning you know
  • 00:38:35
    like how aggressive should I be well be
  • 00:38:37
    as active as you like there's no such
  • 00:38:39
    thing as being too active or too
  • 00:38:41
    aggressive there is such thing as not
  • 00:38:44
    being active
  • 00:38:48
    enough but there's no such thing as
  • 00:38:50
    being too active or too aggressive is
  • 00:38:51
    there such thing as overtrading I don't
  • 00:38:53
    know maybe some people think I I'm I'm
  • 00:38:55
    an over Trader so it's hard for me to
  • 00:38:57
    agree with that but I'm also a very
  • 00:38:59
    aggressive Trader um so I like people
  • 00:39:02
    that are active and aggressive I'm fine
  • 00:39:03
    with it but some form of daily daily
  • 00:39:07
    engagement even if it's just a position
  • 00:39:09
    review some form of daily engagement
  • 00:39:11
    where it's just like hey you know what
  • 00:39:13
    um I just G to check my positions you
  • 00:39:15
    don't even have to make a trade but just
  • 00:39:17
    hey I'm gonna check my Deltas I'm gonna
  • 00:39:18
    check my p&l I'm gonna check my
  • 00:39:20
    portfolio Theta I'm going to check my
  • 00:39:22
    portfolio p&l all right what's going on
  • 00:39:25
    today why am I losing this much money
  • 00:39:26
    why am I making this much money what's
  • 00:39:27
    going on I'm just going to check the
  • 00:39:29
    Futures really quick you know what some
  • 00:39:31
    form of daily engagement I don't care
  • 00:39:32
    where you are in the world there's
  • 00:39:34
    nowhere you can be in the world today
  • 00:39:36
    where you can't do this I mean maybe I
  • 00:39:39
    don't know maybe on top of some Mountain
  • 00:39:40
    somewhere who knows but for the most
  • 00:39:42
    part there's almost nowhere you can pay
  • 00:39:45
    and then monetary markets or just
  • 00:39:48
    talking shop is really valuable one of
  • 00:39:50
    the reasons that we do Live Events one
  • 00:39:52
    of the reasons we do this kind of event
  • 00:39:53
    one of the reasons we have chats one of
  • 00:39:54
    the reasons we do all this interaction
  • 00:39:57
    on our Network and everything else is
  • 00:39:59
    because trading can be very lonely when
  • 00:40:01
    you're sitting in a room by yourself or
  • 00:40:02
    you're not around other people and all
  • 00:40:03
    this kind of stuff and investing is the
  • 00:40:04
    same thing being able to talk shop at
  • 00:40:07
    one of our Live Events or doing
  • 00:40:09
    something like that is incredibly
  • 00:40:10
    valuable being able to articulate your
  • 00:40:12
    thoughts about trading being able to
  • 00:40:15
    talk to somebody else about markets I do
  • 00:40:17
    it all day long I mean I've been doing
  • 00:40:20
    it all day long my whole life so it
  • 00:40:21
    seems like that's all I have to you know
  • 00:40:24
    at the Thanksgiving table we always or
  • 00:40:27
    at at some holiday table at my house
  • 00:40:29
    it's not a question of let's you know
  • 00:40:32
    don't don't read your phone or don't
  • 00:40:34
    watch TV it's always like hey no talk no
  • 00:40:37
    Market talk today that's how that's how
  • 00:40:40
    wacky my family is and then remember and
  • 00:40:43
    this is so important for me Product
  • 00:40:45
    indifference and capital efficiency
  • 00:40:48
    allow for more activity if you're all
  • 00:40:50
    locked up in equities there's you're
  • 00:40:52
    trapped like a rat if you're all in
  • 00:40:54
    certain Commodities you're tra you you
  • 00:40:56
    need to be in in products that are in
  • 00:41:00
    you need to be in products that are some
  • 00:41:01
    are capital efficient more Capital
  • 00:41:03
    efficient than others you need to be in
  • 00:41:04
    different true product the great thing
  • 00:41:07
    about Futures and Futures options is
  • 00:41:09
    they are almost all not correlated to
  • 00:41:12
    equities except the except the indexes
  • 00:41:14
    they're almost all not correlated that
  • 00:41:16
    gives you all these other choices and
  • 00:41:17
    all of them are capital efficient so
  • 00:41:21
    again in your head be agnostic be
  • 00:41:25
    product agnostic be product IND
  • 00:41:27
    be
  • 00:41:28
    strategically indifferent be Capital
  • 00:41:31
    efficient all of those allow for more
  • 00:41:37
    activity this is a um correlation graph
  • 00:41:42
    and I put spy Q's iwm TLT gldd Uso un
  • 00:41:48
    and fxc all of these have an underlying
  • 00:41:51
    Futures product spy is es Q's is NQ iwm
  • 00:41:55
    is rty CLT is uh ZB GLD GLD is GC Uso is
  • 00:42:02
    is CL un is NG and fxe is 6E okay they
  • 00:42:07
    all have a Futures equivalent and
  • 00:42:10
    they're all the exact same these are the
  • 00:42:12
    these are the ETFs that we use and you
  • 00:42:15
    can look on here and you can see that
  • 00:42:16
    when you go to the bottom of the page
  • 00:42:18
    and you take a look at um remember the
  • 00:42:20
    Spy is the is the one across the board
  • 00:42:22
    and you look at bonds and gold and Uso
  • 00:42:25
    and and un you you'll see that there's
  • 00:42:28
    virtually no
  • 00:42:31
    correlation fascinating when you start
  • 00:42:33
    to look at all this stuff and you see
  • 00:42:34
    kind of the the beauty of
  • 00:42:36
    non-correlation or uncorrelated
  • 00:42:40
    markets so how important is redeploying
  • 00:42:44
    your capital and the number of
  • 00:42:46
    occurrences well in order for this stuff
  • 00:42:49
    everything we're talking about today to
  • 00:42:50
    be worthwhile for you in order for
  • 00:42:52
    everything that we're doing here to make
  • 00:42:54
    sense for you in the long run in order
  • 00:42:56
    for to work in order for you to have
  • 00:42:59
    some form of predictable outcome you
  • 00:43:02
    have to have a reasonable number of
  • 00:43:04
    occurrences so increasing the number of
  • 00:43:06
    occurrences the number of stuff you do
  • 00:43:08
    something whether you just log on
  • 00:43:10
    whether you adjust a position whether
  • 00:43:11
    you close something or reopen whatever
  • 00:43:13
    it is the more occurrences you have to a
  • 00:43:16
    reasonable number will allow for more
  • 00:43:17
    predictable outcomes redeploying Capital
  • 00:43:21
    taking your position redeploying the
  • 00:43:22
    capital keeps your Capital
  • 00:43:25
    optimized so again basis reduction high
  • 00:43:29
    pop are the foundations of a successful
  • 00:43:32
    portfolio that allow you to redeploy
  • 00:43:34
    your Capital which optimizes your
  • 00:43:36
    Capital which makes your results much
  • 00:43:38
    more predictable what you see on the
  • 00:43:40
    right hand side of the page is what
  • 00:43:43
    happens when you create lots of outcomes
  • 00:43:46
    when you only have a couple you can see
  • 00:43:48
    at the bottom say number of Trades
  • 00:43:49
    sampled when you only have between zero
  • 00:43:51
    and 200 there's lots of there's girth
  • 00:43:54
    there there's lots of width when you
  • 00:43:56
    start to get down between five 600 800
  • 00:43:59
    or 1,000 trades everything starts to
  • 00:44:01
    narrow and there's very little outlier
  • 00:44:03
    moves when you get even more than that
  • 00:44:05
    2,000 to 5,000 trades it becomes a very
  • 00:44:08
    narrow line that's what this is all
  • 00:44:11
    about creating a currenc allows for a
  • 00:44:14
    more predictable outcome redeploying
  • 00:44:17
    capital and keeping your Capital
  • 00:44:18
    optimized gives you the capital to do
  • 00:44:19
    what you need to do and then again it's
  • 00:44:21
    all about basis reduction and high
  • 00:44:25
    pop so
  • 00:44:27
    what are some reasonable return
  • 00:44:29
    expectations because everybody asks me
  • 00:44:31
    this all the time so on your portfolio
  • 00:44:34
    what should you be what's your objective
  • 00:44:37
    so the minimum objective in my opinion
  • 00:44:39
    should be three
  • 00:44:41
    times um risk- free rates risk-free
  • 00:44:44
    rates right now are about 5% you are not
  • 00:44:47
    going to do all this work for 6% or for
  • 00:44:50
    7% or for 8% in my mind with the amount
  • 00:44:53
    of work that it takes the resources and
  • 00:44:55
    everything else your OB objective
  • 00:44:57
    doesn't mean you have to hit it but your
  • 00:44:59
    objective could be 7x could be 35% okay
  • 00:45:03
    could be 3% a month if you have a
  • 00:45:05
    smaller account it's easier to hit
  • 00:45:06
    higher numbers but my point is I don't
  • 00:45:09
    care what it is what the max is I care
  • 00:45:11
    what the Min is and the minimum of your
  • 00:45:14
    objective should be around three times
  • 00:45:16
    the risk-free rates so we're talking
  • 00:45:18
    let's call it wrapped right around 15
  • 00:45:20
    18% on the minimum side because that
  • 00:45:22
    makes all this worth
  • 00:45:24
    it you should average a approximately
  • 00:45:27
    25% of your daily Theta keeping it so if
  • 00:45:31
    your daily Theta let's give it back to
  • 00:45:33
    that example I used earlier which was
  • 00:45:35
    let's say you had a $100,000 account you
  • 00:45:37
    had Thea which you collected $200 a day
  • 00:45:40
    which is 210 of 1% and let's say there's
  • 00:45:43
    30 days in a month okay so you collect
  • 00:45:45
    $6,000 of theta then in that case in
  • 00:45:49
    $6,000 of theta you're keeping 25% of it
  • 00:45:51
    which is $1,500 you then take your
  • 00:45:54
    $1,500 okay and you look at that and you
  • 00:45:57
    say okay what is that on a monthly
  • 00:45:58
    return well lo and behold that's 1.5%
  • 00:46:00
    that's 18% annualized just exactly where
  • 00:46:03
    this is see how beautiful that works how
  • 00:46:05
    the numbers work
  • 00:46:07
    out this should
  • 00:46:09
    significantly if you understand the math
  • 00:46:13
    and the objective here if you understand
  • 00:46:15
    what managing a portfolio is and
  • 00:46:16
    sticking to the mechanics and being
  • 00:46:18
    disciplined and doing some things that
  • 00:46:20
    sometimes are counterintuitive but they
  • 00:46:21
    stick to your discipline and trusting
  • 00:46:24
    the research and honoring that research
  • 00:46:27
    you should significantly improve all
  • 00:46:30
    other aspects of investing that means
  • 00:46:32
    even for non-traditional Investments and
  • 00:46:34
    all their aspects of risk-taking and or
  • 00:46:36
    business entrepreneurship businesses a
  • 00:46:38
    lot of you own your own businesses risk
  • 00:46:40
    taking and everything else like there
  • 00:46:42
    should be 50,000 people 100,000 people
  • 00:46:45
    listening to this discussion today
  • 00:46:46
    because this is the kind of thing that
  • 00:46:48
    changes lives this is the kind of thing
  • 00:46:50
    that makes a difference in everything
  • 00:46:52
    else that you do just understanding you
  • 00:46:54
    know what is a reasonable objective
  • 00:46:56
    what's the minimum objective how high
  • 00:46:58
    could I shoot for what is a reasonable
  • 00:47:00
    amount of money to keep based on the
  • 00:47:02
    risk that I'm taking and how much will
  • 00:47:04
    this impact everything else I do it
  • 00:47:06
    could be as much as 10x look at me I I
  • 00:47:09
    thought I was
  • 00:47:10
    done once you prove concept and you
  • 00:47:13
    prove
  • 00:47:15
    repeatability what I'm talking about
  • 00:47:17
    today here is very scalable that goes
  • 00:47:19
    back to that whole longevity thing
  • 00:47:20
    forgot about how important this slide is
  • 00:47:23
    how scalable is trading an active
  • 00:47:25
    portfolio well you need to prove concept
  • 00:47:28
    before you scale up you need to prove
  • 00:47:30
    concept you need to prove that you can
  • 00:47:32
    repeat this then it is very scalable the
  • 00:47:36
    general rule of thumb is scaling
  • 00:47:38
    Investments is about 10x the
  • 00:47:42
    speed of wealth
  • 00:47:45
    creation I know that sounds like just
  • 00:47:47
    think about it but I wrote this we we
  • 00:47:49
    try we've kind of tried to come up with
  • 00:47:51
    a model but as a general rule of thumb
  • 00:47:54
    scaling Investments is about about 10
  • 00:47:57
    times the speed of wealth creation
  • 00:47:59
    wealth creation takes a really long time
  • 00:48:01
    if you learn how to scale you can speed
  • 00:48:04
    that up 10x there's a lot of studies on
  • 00:48:07
    this not just done by us but there's
  • 00:48:08
    some University of Chicago studies
  • 00:48:10
    there's lots of studies about about you
  • 00:48:13
    know studies on kind of economic
  • 00:48:15
    Foundation economic bias and all this
  • 00:48:16
    kind of stuff and about basically how
  • 00:48:19
    how scaling Investments improves the
  • 00:48:23
    speed of wealth creation which is all
  • 00:48:25
    what this is about but again first you
  • 00:48:27
    have to prove concept first you have to
  • 00:48:29
    prove prove repeatability then it
  • 00:48:32
    becomes scalable and then you take
  • 00:48:34
    things to another level
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