I found tastytrade for learning the basic stuff great. But now I am slowly getting past that level there is something I don't get. Their team seem to put on a lot of Short strangles on, like this one.... https://gyazo.com/1996b267fbc263beb8d83b2cdd5c39cf It was put on the just before earnings came out for a $2,20 credit in ROKU. As I said they seem to do a lot of trades like this. I get they can work 80%+ of the time, but the one time they go wrong they surely wipe out all those small credits, plus for some maybe their entire account. I get how you can manage risk etc as well, but this trade is put on before earnings come out, so if shocking news came out the first trade you would be able to do would be after the stock gaps and your trade is in serious trouble. So what am I missing here? are these trades really winners in the long run? Thank you for your time and help
That's not a straddle; it's a strangle. Big difference. And yes, they put on a lot of them when IV rank is high; their research shows that it's the strategy with the highest ROI over time. It is not, however, a great strategy for someone with a small account; naked strategies require a lot of buying power, which by definition makes it inappropriate. For that, their research points to iron condors in lower-priced underlyings and making the wings wider (as opposed to adding more contracts) as you decide to increase your risk.
TT shorts the strangles (ostensibly) bc the wing-vol is too high to allow one to cover the condor profitably, post earnings. Don't do it. There is a persistent calendar edge (pre-report) but the short strangle is just gambling. Yes, vol will drop... but it's not of any consolation if the shares move 20%.
is there any data to show it works long term? I get you could wins for months/years doing this, but pointless if one black swan event wipes it all out
No, it doesn't work. There is no free lunch. They are shorting the naked combo bc it's too costly to buy wings. Vol always drops, but what does a vol-drop do for you if the shares dot-shot 80 handles? You're a poker player? Do you routinely go all-in on 27o for kicks?
Have you ever actually looked at their site? This statement is frankly ludicrous in light of their (constantly reiterated) basis for trading. Their research specifically says that earnings are zero-sum in the long run. So, no, it's not based around earnings.
Yes. Look for the research they've done on strangles and other strategies. They generally backtest using SPY for 15 years or more.