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Is Passive Investing Killing Real Price Discovery? | 7.22 | One Lucky Dog LIVE!

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Trade ideas

Trade idea

Trade idea selling puts on inverse ETFs

The speaker suggests that selling puts on inverse ETFs can offer a better risk-reward ratio than selling calls on the underlying, but this is not definitively confirmed.

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Strategyselling puts on inverse ETFs
Time horizonShort-term, as the speaker emphasizes adjusting when uncomfortable.
Entry / triggerWhen the stock is expensive, selling puts with a 16 delta strike is preferred. However, if the stock is cheap, the 16 delta may not be available.
Target / exitCollect premium while managing risk.
Invalidation / stopIf the put is breached, the trader should adjust immediately rather than waiting for the strike to be breached.
SpeakerThe speaker
Risks
  • Inverse ETFs are designed to degrade towards zero, which may affect the risk-reward balance.
  • The speaker warns that traders may fall in love with the additional premium from selling puts on inverse ETFs, which could be a false sense of security.
medium confidenceVerify in video at 16:52 ↗
Trade idea

Trade idea

The trade has a high probability of being profitable if Oracle moves within the expected range

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Time horizon30 days
Entry / triggerSold a put for 120 on Oracle when it was trading around 130
Target / exitExpected move of $19 within 30 days
Invalidation / stopIf Oracle continues to decline beyond the initial trade setup
SpeakerSha in Arkansas
Risks
  • Oracle continues to decline beyond the initial trade setup
  • Volatility changes affecting the expected move
30 days
high confidenceVerify in video at 25:30 ↗
Trade idea

Trade idea Strangles

Skew strangles based on market sentiment and stock valuation

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StrategyStrangles
Time horizonShort-term
Entry / triggerWhen stocks are beaten up or too expensive
SpeakerSpeaker
Strangleshort-term
high confidenceVerify in video at 33:07 ↗
Trade idea

CL call spread

take advantage of market condition

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Strategycall spread
Assetcommodity
Expirationcurrent
Time horizonshort-term
Entry / triggercrude oil is up 250
Target / exitcollect between one-third to 25% of the width of strikes
Invalidation / stopcall skew in crude oil
Speakerspeaker
Structure / legs
  • 93
  • 96
Risks
  • market reversal
  • volatility drop
shortcommodityshortcall spreadCLshort-term
high confidenceVerify in video at 37:50 ↗
Trade idea

Trade idea

The speaker is considering shorting the stock if it reaches certain price levels.

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Time horizonShorter time frame
Entry / triggerIf the stock gets back up to 1050, 1100 for sure, I'm going to look to get short it.
SpeakerSpeaker 2
Risks
  • The stock may not reach the target levels.
  • Market volatility could affect the trade outcome.
high confidenceVerify in video at 1:06:39 ↗

Insights

Insight

Optimal Delta Range for Trading

The speaker suggests that the optimal range for delta in trading is between 16 to 22 delta, as it provides the best risk-reward balance. This range is considered more favorable than the 30 delta range due to its position around the standard deviation move, which is associated with higher profitability with lower risk.

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Applicable when
  • trading
  • risk management
Limitations
  • The speaker does not provide specific examples or data to support this claim beyond general research and experience.
high confidenceVerify in video at 14:21 ↗
Insight

Consistent and Repeatable Trading Approach

Develop a consistent and repeatable trading approach to ensure discipline and avoid frustration. This approach should be based on research and proven strategies.

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Applicable when
  • Consistent trading
  • Discipline
  • Repeatable strategies
Limitations
  • General advice
  • Not tailored to individual strategies
trading strategy
high confidenceVerify in video at 1:28:44 ↗

Q&A

Q&A

Passive investing now represents a massive share of total market flows. Is it higher now than it's ever been?

The speaker believes passive investing is higher now than ever before, citing that retail equity volume makes up about 30% of equity volume and that passive index fund tracking funds account for 54% of total assets under management.

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Actionable takeawayPassive investing has reached a significant portion of total market flows, with index funds accounting for 54% of assets under management.
high confidenceVerify in video at 03:39 ↗
Q&A

Beyond collecting more premium, how does selling a 30 delta put change the riskreward profile compared with selling a 16 delta put? And is the lower probability of profit worth it?

Selling a 30 delta put collects significantly more premium compared to a 16 delta put. However, from a theoretical standpoint, the riskreward profiles are similar. The choice between the two depends on the stock price; for expensive stocks, the 16 delta put is preferred, while for cheaper stocks, the 30 delta put may be more practical.

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Actionable takeawayThe decision between selling a 30 delta put and a 16 delta put depends on the stock price and the trader's risk tolerance, with the 16 delta put being preferable for expensive stocks and the 30 delta put for cheaper stocks.
Options
high confidenceVerify in video at 13:18 ↗
Q&A

Does selling puts on an inverse ETF offer a better risk-reward trade than selling calls on the underlying?

The speaker states that there is no difference between the two strategies, but he does not know the answer definitively. He also warns that traders may fall in love with the additional premium from selling puts on inverse ETFs, which could be a false sense of security.

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Actionable takeawayThe speaker suggests that there is no difference between the two strategies, but he does not know the answer definitively. He also warns that traders may fall in love with the additional premium from selling puts on inverse ETFs, which could be a false sense of security.
risk managementTrading Strategy
medium confidenceVerify in video at 16:52 ↗
Q&A

Is there a futures market that you think has genuinely gotten more interesting for retail traders in the last couple of years?

The speaker mentions that several futures markets have become more accessible and interesting for retail traders, including gold, S&P 500, NASDAQ, crude oil, and bonds. The introduction of micro futures over the past seven to eight years has democratized the futures market, making it more attractive for retail traders.

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Actionable takeawayThe introduction of micro futures has made several markets more accessible and interesting for retail traders.
high confidenceVerify in video at 18:54 ↗
Q&A

How do you determine when to cut losses on short puts and strangles?

The speaker suggests using a two standard deviation move as a guideline and staying in the trade if the expected move is within the statistical probability of profitability.

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Actionable takeawayUse statistical probability and expected move to determine when to stay in or cut losses on short puts and strangles.
Strangle
high confidenceVerify in video at 25:13 ↗
Q&A

What is technically the optimal way or optimum way to manage any trade?

The optimal way to manage any trade is to roll up or down the untested side if there is one, or add one if there isn't. Alternatively, rolling out in time reduces risk and adds duration, giving more time to be right. The key is to reduce delta risk without adding more capital.

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Actionable takeawayStay disciplined, understand your profit target, and adjust trades by rolling or adding to reduce delta risk without increasing capital exposure.
risk management
high confidenceVerify in video at 29:21 ↗
Q&A

Are there techniques to get more dollars to mimic the stock alone?

No, the speaker advises focusing on the effectiveness of the covered call strategy rather than trying to mimic the stock alone.

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Actionable takeawayFocus on the effectiveness of the covered call strategy rather than trying to mimic the stock alone.
Covered Call
high confidenceVerify in video at 34:55 ↗
Q&A

What is the current price of crude oil?

Crude oil is up 256 this morning.

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Actionable takeawayCrude oil has increased significantly this morning.
commodityCL
high confidenceVerify in video at 37:39 ↗
Q&A

How do I profit harvesting with short-term options?

To profit harvest with short-term options, aim for the midpoint of the time duration. For weeklies, target midday Wednesday optimally. If trading on Fridays, consider Tuesday or early Wednesday. Avoid carrying positions past midday unless trading dailies, in which case avoid going past 11:00 AM central time.

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Actionable takeawayProfit harvesting with short-term options involves timing the exit at the midpoint of the time duration, with optimal timing being midday Wednesday for weeklies.
Options
high confidenceVerify in video at 42:42 ↗
Q&A

Do you feel that these things also then simply are just in some way, shape or form actually handing you your own capital back?

Yes, it's part of the cleanest way. However, the problem with these funds is that you can't do tax harvesting with them, and it's much harder for the funds. It's recommended to talk to your tax advisor for clarity.

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Actionable takeawayTalk to your tax advisor for clarity on whether these funds are handing you your own capital back.
high confidenceVerify in video at 48:09 ↗
Q&A

As you've said those last couple days, you would think with oil up ABC, whatever the price is, market would be lower.

The speaker suggests that oil prices being higher should lead to a lower market, but this hasn't been observed. They question at what point the effect of oil prices on the market stops being considered.

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Actionable takeawayThe speaker questions the relationship between oil prices and the stock market, suggesting that higher oil prices may not necessarily lead to lower market performance.
marketMarket Outlooktrading strategy
high confidenceVerify in video at 52:24 ↗
Q&A

When does a margin call become likely in an underlying as an underlying approaches the call or put strike on a short strangle?

A margin call becomes likely if the position is too large relative to the account size, typically if using 3 to 5% of buying power. It depends on the stock's position relative to the strike price and the delta of the options. If the stock is at the money, the delta is 50%, and the position should not be in a call unless it has moved significantly in one direction. It's crucial to check buying power allocation to ensure positions are not too large.

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Actionable takeawayMonitor position size relative to buying power and ensure it's within recommended allocation (3-5%) to avoid margin calls. Check delta and strike price proximity to assess risk.
short strangleOptionsrisk management
high confidenceVerify in video at 56:18 ↗
Q&A

Are you going to take the time to find them?

Agree, but first of all, this is a stock that's actually acting more like bullish stocks in yester year.

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Actionable takeawayThe speaker agrees that it is important to find opportunities, but emphasizes the need to first understand the stock's behavior.
stocksTrading Strategy
high confidenceVerify in video at 1:00:21 ↗
Q&A

What would be bearish if people rotated into these?

If people rotated into these, it would be bearish as rotations typically happen at the bottom, not the top. The speaker suggests that rotations are a sign of market correction and not an indication of a bullish trend.

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Actionable takeawayRotations are typically a sign of market correction and not an indication of a bullish trend. They happen at the bottom, not the top.
high confidenceVerify in video at 1:11:51 ↗
Q&A

What is the current state of the S&P and NASDAQ?

The S&P is down 15, and the NASDAQ is down 120.

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Actionable takeawayThe S&P and NASDAQ are both experiencing declines.
Market Outlook
high confidenceVerify in video at 1:14:18 ↗
Q&A

Do you think I'm missing out on not looking for volatility opportunities?

The speaker suggests that if the trader is making money with their current strategy, they should continue it. They also mention that trying a small portion of capital in a different approach could be beneficial, but caution against abandoning a winning strategy.

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Actionable takeawayContinue a winning strategy and consider small-scale experimentation with volatility opportunities without abandoning the current approach.
risk managementtrading strategyvolatility
high confidenceVerify in video at 1:26:11 ↗
Q&A

Have you ever had that happen to you with your large accounts that you have?

Yes, the speaker acknowledges that they have experienced this situation with their large accounts.

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Actionable takeawayLarge accounts can face issues where capital is tied up without generating returns.
Account Management
high confidenceVerify in video at 1:31:30 ↗