Flip a nickel ten times and imagine it comes up heads. Flip it for an eleventh time and what will it be? Nickels, like most other inanimate objects, do not have memories (my couch is an exception and sitting in certain places actually will help the Cubs win). Odds on that eleventh flip being heads will never exceed 50/50. So why bet that? I would rather offer Jared favorable odds on the nickel landing on its side, which happens around every 1 in 6,000 tosses, then take his money.

Dylan asked a very un-Tom-like question when he asked how Tom can be making money despite being directionally wrong on bonds and S&P futures? The answer: we do not bet heads or tails, we bet heads/tails vs. landing on its side.

All traders and investors have a substantial opportunity when it comes to investing that didn’t exist just twenty years ago. We have amazing technology that facilitates ground-breaking research. That research, when understood and used correctly, has the ability to change investing. The challenge is getting people to use it, but we will.

We know we will never be directionally correct on a consistent basis. Picking direction is fun but it does not work. What works is applying the right strategy at the right time. It is like a quarterback calling an audible based on what the defense is showing.

S&P futures are up about 13.5% since the first week of January. Being short and nothing more would be a losing trade. However, implied volatility was very high during the first quarter. That allowed us to sell a lot of premium around our short position. Our research told us the market was overpricing the expected move in futures. We took advantage and sold puts and calls outside those expected moves and lowered our cost basis. We did the same thing with bonds. We applied our research and kept our opinions to ourselves, well, for the most part.

At tastytrade, we look for the highest probable trades that justify the risk. We are not out seeking the next stock that will triple in value any more than we are seeking that expensive stock whose value will be cut in half. We are seeking high probability trades that extend duration and lower cost basis. Those are the trades most salient to us.

We have the tools. We have the technology. We have the research. What we do not have is an educated investing public that understands how to put that all together. Yet. We are getting there though.
 


Josh Fabian has been trading futures and derivatives for more than 25 years.

For more on this topic see:

Truth or Skepticism with Dylan Ratigan: July 21, 2016