Tom talks about the “hurdles” that IRA traders must overcome due to the rules set up by the passive investor environment that we are currently in. However, until we change the current investing environment from passive to active, IRA traders can use these shortcuts to get past these obstacles:
• Define risk to the downside
• Adjust distance from ATM for short options
• Favor high IV products
Using current options prices on the S&P 500 ETF (SPY), we show the different ways that IRA traders can combat the cash-secured put. By buying further out-the-money puts and defining risk to the downside, traders can free up more capital in order to implement more strategies, produce more occurrences, and enhance potential return on capital.
IRA traders can also move short strikes closer to the at-the-money strike in order to collect more premium and increase potential return on capital. However, this strategy comes at the expense of a decreased probability of profit. Tom talks about how traders must find their “happy place” when looking at a strategy like this to enhance potential returns.
Tom brings the segment home by talking about what makes tastylivers different from fund managers and high-frequency traders, and that is our desire to find and sell high implied volatility. Not only IRA traders, but all traders will see an increased potential return on capital when seeking and selling premium on underlyings with high implied volatility relative to its historical levels (as measured by implied volatility rank – IVR).
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