I subscribed 3 days ago to your Patreon community. Love what you are doing and how you are explaining things, you are a great teacher, thank you for sharing your knowledge and passion. I have been studying your covered strangles and ratio diagonals which I would like to apply as well. I would need some more examples of trades to reallly feel comfortable with the implementation, not sure where I can find that but I will watch more of your videos. I am not an expert in options, but I get the power of trading these instruments. I was able to understand everything, I get the fact that you don't want upside risk on ratio diagonal call spreads, but I got lost at the end with the explanation on how to calculate the critical strike and the adjusted long call basis, this is too difficult for me but I will work on it. Glad to be part of your patreon members, what you are doing is really awesome !
Thank you so much for supporting my work! Ratio Diagonals are awesome, the math at the end might seem a little much but once you tinker with it a few times it starts to make sense. We can also review it if you’d like during one of the weekly patreon q&a sessions. The critical strike concept is just to ensure we’re not selling options at too low of a strike and locking in a loss. This can also be done via a PnL chart which most software has.
Great video! 👍 Erik, based on your experience, how do you allocate strategies in your portfolio? What % of the portfolio is occupied by Ratio Diagonal spreads, what % is occupied by naked options, strangles, etc? I understand that these percentages can vary, but still: what allocation in % between strategies would you recommend as a basis?
I don’t really split my portfolio that way. Strategies are simply methods to gain exposure to a thesis. So it’s really driven by that. Aka, there’s not a point where I say “oh, I have 4 ratio diagonals on, I shouldn’t add another”. My job as a trader is to evaluate opportunities and then do my best to apply the best tool I have (strategy) for each circumstance. Sometimes I use one tool 20 times. Other times once before it’s time to use a different tool.
This is awesome. Curious if you've traded futures with this strategy? Leverage with futures and daily options on /NQ and /ES (and micros) could be a shorter term bullish/bearish play. I've done covered strangles on /MNQ for a few months now and have had great success.
I typically trade futures directionally. This strategy can work okay but something like the covered strangle would be a problem with any long-term holdings due to roll yield eating into profits. The margins over buy and hold aren’t big enough to justify them.
Varies on portfolio objectives and market conditions but in general, I'd keep allocation to individual ratio diagonals no more than 15% of the portfolio (which is the high side designed to give me some room). Average allocation probably something around 5-10%.
@@OutlierTrading Meaning a calculator or spreadsheet? Tasty has a visual to show the profit curve. Moving the Strikes for the Short call do not seem to affect the Buying power required or the max loss, just the profit curve, it appears not to be al that "critical" can you explain why it is?. The Short call is OTM correct? When is the trade closed? only on price movement? Theta seems not involved.
For the ratio diagonal spread when the short leg expire do I sell the long call/put along with the expiring leg or do I repurchase the short leg. After all the long leg hasnt expire.
@@OutlierTrading what's funny is that I was doing the cover strangle and ratio spreads not knowing that's what I was doing so as I was learning to adjust my options. When I learned it was an actual strategy used by a successful trader as yourself I realized wasn't a complete idiot and must be getting somewhere lol.
I subscribed 3 days ago to your Patreon community. Love what you are doing and how you are explaining things, you are a great teacher, thank you for sharing your knowledge and passion. I have been studying your covered strangles and ratio diagonals which I would like to apply as well. I would need some more examples of trades to reallly feel comfortable with the implementation, not sure where I can find that but I will watch more of your videos. I am not an expert in options, but I get the power of trading these instruments. I was able to understand everything, I get the fact that you don't want upside risk on ratio diagonal call spreads, but I got lost at the end with the explanation on how to calculate the critical strike and the adjusted long call basis, this is too difficult for me but I will work on it. Glad to be part of your patreon members, what you are doing is really awesome !
Thank you so much for supporting my work! Ratio Diagonals are awesome, the math at the end might seem a little much but once you tinker with it a few times it starts to make sense. We can also review it if you’d like during one of the weekly patreon q&a sessions.
The critical strike concept is just to ensure we’re not selling options at too low of a strike and locking in a loss. This can also be done via a PnL chart which most software has.
This reminds me of Poor Mans Covered Call. I like the idea of leaving a long option not covered to uncap potential gains.
Great update to one of my favorite videos!
As promised!
Great video! 👍
Erik, based on your experience, how do you allocate strategies in your portfolio? What % of the portfolio is occupied by Ratio Diagonal spreads, what % is occupied by naked options, strangles, etc?
I understand that these percentages can vary, but still: what allocation in % between strategies would you recommend as a basis?
I don’t really split my portfolio that way. Strategies are simply methods to gain exposure to a thesis. So it’s really driven by that.
Aka, there’s not a point where I say “oh, I have 4 ratio diagonals on, I shouldn’t add another”.
My job as a trader is to evaluate opportunities and then do my best to apply the best tool I have (strategy) for each circumstance. Sometimes I use one tool 20 times. Other times once before it’s time to use a different tool.
Hey Brother! Sweet vids. I am learning a ton. Just came across the 'Short Guts' strat. Wondering what your take is on it?
Hey man, thanks!
They’re similar to a short strangle but typically with a wider profit range. They can be great trades.
This is awesome. Curious if you've traded futures with this strategy? Leverage with futures and daily options on /NQ and /ES (and micros) could be a shorter term bullish/bearish play. I've done covered strangles on /MNQ for a few months now and have had great success.
I typically trade futures directionally. This strategy can work okay but something like the covered strangle would be a problem with any long-term holdings due to roll yield eating into profits. The margins over buy and hold aren’t big enough to justify them.
What % would you allocate to trades like this v. a covered strangle?
Varies on portfolio objectives and market conditions but in general, I'd keep allocation to individual ratio diagonals no more than 15% of the portfolio (which is the high side designed to give me some room). Average allocation probably something around 5-10%.
Is there somewhere to calculate the critical strike?
when you say somewhere what do you mean? you can also checkout the diagonal playlist that walks through these a bit more in detail.
@@OutlierTrading Meaning a calculator or spreadsheet? Tasty has a visual to show the profit curve. Moving the Strikes for the Short call do not seem to affect the Buying power required or the max loss, just the profit curve, it appears not to be al that "critical" can you explain why it is?. The Short call is OTM correct? When is the trade closed? only on price movement? Theta seems not involved.
For the ratio diagonal spread when the short leg expire do I sell the long call/put along with the expiring leg or do I repurchase the short leg. After all the long leg hasnt expire.
depends entirely if it's ITM or not. if expiring OTM, no reason to unwind the longs unless you want to.
Let's go deeper. Maybe during the live streams with real time chart examples.
DEEPER BOI
@@OutlierTrading what's funny is that I was doing the cover strangle and ratio spreads not knowing that's what I was doing so as I was learning to adjust my options. When I learned it was an actual strategy used by a successful trader as yourself I realized wasn't a complete idiot and must be getting somewhere lol.
@AVWAP they’re solid strategies so I def think you’re on the right path
Gold