That in general, you know the outlier move takes you down not the outlier, but the expected move takes you down to the twenty-five Delta strike will then, of course if you do one if you're buying one strike um if you're buying the at the money or one strike out of the money put side or on the call side, then the option that is that is the Twenty-five Delta is going to be at the expected move. Don't worry about anything else on the screen just yet, okay, So that is the contract that is the counter party. There's deltas. It's just it's kinda cool that the way that always works um let's go back to the slides.
Hang on one second, I'm just looking for. Can't even hit bids today. Not that good obviously. Um hang on one second, I just wanna put a little Microsoft, something on. I'm trying to sell it above the bid. Okie there you go. I mean I'm trying to sell.
I'm trying to sell a little bit. That's what I meant to say.
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Oh above what do you know below above? I don't know anything doesn't matter to you. What are you trading?
I'm trading volatility against puts in uh in the mall. Thirty puts at and trying to sell a ounce selling futures at Got okay Um we got a couple of pieces of research for you today It's going to be a good one you register in the minis. It's like you know it's shares of stock.
It's not you know. Yeah, um selling you're selling future selling puts that's correct.
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It's pretty constant there. Where is it at? I'll I'll put up for you.
I don't know what you what you're Tastytrade Put Options. I've your rank is forty-five Okay. Forty-five has had a couple of upticks lately. It's at the higher end. I think that's okay. It's not a long-term hold that's correct. That's correct. I hope it's not. Um alright, so here's a piece of research we did and it's on racial spreads and the reason that we did. First one is how to set up a ratio spread and then in the next couple of days, we're gonna do another one that essentially says um how to manage the trade and where to take profits.
It's a very racial spreads are a very high probability trait um and so the. With them is there is a negative side of racial spreads. They have unlimited risk and you don't make a lot of money. The so you've you basically take a lot of risk for very small, you know profits are the flip side is they have an extremely high success rate and the reason for it is it's it's kinda like you're selling it out of the money junkie naked option that Tastytrade Put Options.
a high success rate. That's really all it is, but. Let's let me explain so here we go how to set up a racial spread.
Okay So the first slide here we have is ratio spreads are moderately directional strategies with defined risk to one side. Um what I wanted to tell you is. I don't think this actually is how to let me let me show you the more interesting way to just how to how to set up and find a racial spread.
So the first thing I want you to do is go to software for a second okay and I want you to go to the market um the Tastytrade Put Options.
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liquid underlying on a on a on a just a watch list. Uh you want Apple. I mean no no no the most liquid underlying just go to the watch list of the most liquid underlines Beth can take this down for me. I'm sorry.
I think that you gotta start somewhere so what you really want is you want high? I rank because when you're doing a ratio spread you want um you wanna search by high Ivy rank in the most liquid Tastytrade Put Options. liquid underlines Hy-Vee rank. Tastytrade Put Options. mean you're not gonna look at it AG Tastytrade Put Options. something like that. No, I just want high Ivy rank most liquid and then the reason you want.
You know society. Hey, there's something on this list where you know what um uh it Tastytrade Put Options. me price wise. How about Facebook? Facebook is an expensive stock. Let's see let's say find a cheaper stock, just for an example, but um let's find a non commodity stock. Is still five stars this Hy-Vee rank. I hate Cisco. The stock has been on its butt. Ivy ranks Thirty-seven stocks been on spot, so it meets the criteria of high implied volatility rank extended move nothing.
We have no positions on there kinda like this. This is where you go, maybe I'll do a put ratio sprint right Tastytrade Put Options. why and why put ratios business on his butt?
Okay, So you wanna have the risk to the downside cuz the stocks being on its button, you'll slightly bullish neutral event. I have no opinion in Cisco but I searched for a stock that had high ID rank lots of liquidity and fits my price range, which I wanted inexpensive stock. Time frame In this case, we're gonna go to December because the because we're rolling November this week. I wanna have a legit shot of keeping some money so the first thing on the puts would probably buy.
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That's our buy and those are a buck fifty now we do wonder ratios. Wanna do something for a total credit? Okay and we're gonna sell two of those and so those puts are how much I can't read it from here. Those are the perfect so 88¢ twice is a dollar percent credit. A classic ratio spread so the question before don't go Tastytrade Put Options.
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to the slideshow. The question was how do you um set up a ratio spread and the way we do it is we find we've selected the strategy because implied volatility are high. We find a stock that's liquid. We find a stock that has high IV rank. We then look at whichever price extreme direction.
It's gone in the case of Cisco. It's been down so we'll sell we'll do a put ratio spread. We buy the nearest to the. Money strike we sell whatever strike we can sell twice as many against that um to do it for net credit, which in this case is cents in that range and then theoretically what do we have on?
We're long put spread one time and we're short a naked put at the 34 strikes statistical chance of getting to 34 is what to getting to 34 is 25 is twenty-five.
So that's that's Tastytrade Put Options. It's thirty. That's why ratio spreads are interesting traits and and and what option do you synthetically short in this case, you're synthetically short because you did the you're synthetically Tastytrade Put Options.
of Tastytrade Put Options. puts and you assured that put for twenty-four. Tastytrade Put Options. why would you wanna be sure that put for 24¢ of it's trading 48¢ cuz you have that embedded long put spread in there The correct and the chance of getting to thirty-two or what.
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Let's just say bucks. And what can you make on this trade? Yeah, I mean, yeah and you'd like to make it today or tomorrow. I mean you know in the next, you know the next couple of days. What do you want the stock to do you want the stock to rally right? I mean this has long Delta to it. There's long the delta to it. You want to start to rally although the best price for you is thirty-four, I mean it's an interesting trade.
I'm just I'm pointing out the simplicity of this cuz the first slide was you know how do you separations right now? Let's go back to the slides for a second yup. So as you can see here, the strategy we use to put ratio buy one sell two further out of the money puts the long bias. It's a Delta, a Tastytrade Put Options.
bit long, but the max profit is the downside you almost never get to max profit. With the strike price of the short options, signifying the max profit point, How can we choose the strike to optimize our chances of the stock landing in the max profit zone? Oh, I wish there was I wish there was a way, but we usually do it based on unexpected move. So if you look at if you're looking for go go to next slide, Beth for a second and I wanna take you back for one second that Cisco thing so stock Tastytrade Put Options.
is is relatively symmetric about zero. With a slight upward bias intensity for to exhibit outlier move the downside. This is just talking about general terms, But can you go back that Cisco example for a second uh sure hold on if you look one of the one of the ways that they used to um when we would teach about ratio spreads.
Our perfect short strike thirty-three and yeah. Yeah and so what we've done here and what we do with all our racial spreads just by design is the methodology we use takes you to the outer limits of the expected move.