Hello! Not 100% sure that my question should be in options, but because it's about tastytrade, I decided to ask here. In one of the episode: https://www.tastytrade.com/tt/shows/market-measures/episodes/when-to-scalp-stock-05-24-2018 they gave a formula for calculating the potential range. The formula if very simple, but I really confused about the examples how they calculate the range of ROKU and SPY in that episode. I got the different values. Could somebody explain how the got that values Thanks!
First, the formula they use is actually specific to not just the day, but the hour and the minute -- so the results will be different at 8:30, at 9:30 cash open, at 1:45..... Second, the IV (forward looking -- "Big talk"...) versus a look at prior week's daily?? [ATR(6)], IV-talk is cheap, but the ATR tells you just what was done. Third, their |0.50;1.00;1.50| results are taken from the first (and standard) equation -- they never actually use the second. Fourth, they never defined "scalp" anyway! So when is the entry? When is the exit? Bottom line? Sketchy work; first equation is the more standard one anyway; ATR is the walk -- IV is just talk.
Both of their attempts at teaching scalping fail miserably. They could pretty much flip a coin. Their wins are small scalps and losers become "core" positions. I think they have some scalps on the books from ES 2000 level. Initially years ago, Sossy used say he was up at 4am, scalping. Then it was, they don't make money scalping (nobody makes money trading futures according to him) but use scalping to remain engaged. Now, they don't even talk about scalping hardly at all. 900 points of ES heat will do that to you.
Thanks! Let me summarise your main point - using ATR(6) has more sense because it shows "real current volatility" but IV is just "prediction" Is it correct? Sorry I do not understand what do you mean "first equation" and "second equation"? That video has only one. I think I missed something
Yes -- and the reason is, if I'm using T/A (like ATR or VIX/VIX9D quotes, or per-strike IV, for that matter), if I think they're giving me a good picture for the next 15-20 minutes? I'll actually trust it for 5-10 minutes. They're indicators, after all... The thing about anything derived from option prices (as per, IV), is that they're looking forward 24-48-72 hours, a week{?}, or a month or more[!!!]. They are NOT looking so much forward for the next 2-6 hours, or 90 minutes, or whatever. Which would be equivalent to asking a farmer (with a N.O.A.A weather atlas in his/her hand) about whether you'll need an umbrella today. You're much better off judging your need according to who came through the door last, and how they were dressed. The farmer will quote you IV; but if the last person through the door was soaked.... *I'd* carry the umbrella. [And, for the record, I totally love/follow the VIX9D, and the difference between the 9D and the VIX, and in detail, the individual strike IVs. But for a window *bigger*than* 'the next 24 hours.'] Unclear language on my part. They gave the standard 68% ≈ ±1σ, and then cited 85% of (actual) obs. within 1 sigma -- That would be a highly eukurtotic (leptokurtic) outcome that's easily explained by a lack of data, but invites disaster for those who don't pay attention to the vastly under-sung tail risk. Bad move, and they should know better.