Here at tastytrade we often talk about active management of one's investments.

Cutting through the industry jargon, active management refers simply to building a portfolio with the intention of outperforming a benchmark.

Passive management, on the other hand, is an investment approach hinged on tracking/matching the returns of a benchmark.

While our passion at tastytrade for trading and markets certainly lends itself well to active management, we certainly don't embrace this philosophy without good reason. Active management isn't as complicated as you might think, and furthermore, it may lead you on the path to enhanced returns.

A recent episode of The Skinny on Options Data Science helps illustrate the power of active management by comparing some relatively straightforward active strategies against a common passive strategy.

The man behind this analysis is none other than Dr. Data (Dr. Mike Rechenthin), who presents his findings on the show.

Dr. Data backtested data from 2000 through 2016 on four different strategies (3 active, 1 passive) and then compared the results. The four strategies include:

  • Long S&P 500 (includes dividends)

  • Short ATM Put in SPX

  • Long S&P 500 and Short ATM Calls in SPX

  • Long S&P 500 and Short 30 Delta Calls in SPX

The slide below depicts the results of this analysis:

As you can see from the above, the Short ATM Puts approach outperformed the other three strategies over roughly 16 years of data. Additionally, 2 of the 3 active strategies outperformed the passive strategy.

The average returns of each strategy and percent of profitable weeks are shown below:

  • Long S&P 500 - 5.7% (55%)

  • Short ATM Puts - 6.6% (67%)

  • Covered ATM Calls - 4.8% (62%)

  • Covered 30 Delta Calls - 6.3% (60%)

As usual, Dr. Data's clever analysis help clarify the potential outcomes using a variety of approaches in the market. It should be noted that none of the strategies incorporated in the study involved highly complex trading models.

In fact, it's difficult to think of a more simple approach than the Short ATM Put strategy that ultimately outperformed its peers.

We hope you'll take the time to watch the entire episode of The Skinny on Options Data Science focusing on backtesting active versus passive management when your schedule allows.

If you want to review further information on active/passive management, the following links may be of interest:

If you have any questions for the tastytrade team about active investing, or anything else that might be on your mind, we hope you’ll reach out at support@tastytrade.com.


Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.