A comprehensive study comparing IWM and SPY revealed that when normalized for IV-adjusted notional value (with SPY's value approximately double IWM's), both ETFs show remarkably similar win rates (71-72%). Despite IWM offering higher premiums with greater volatility than SPY, their risk-reward ratios become nearly identical when properly adjusted.
Today's Skinny on Options: Abstract Applications focuses on convexity in a zero-DTE options world, noting that most market volume now comes from zero-day options. Dr. Jim discusses how these instruments represent the maximum point of convexity risk, with gamma reaching its peak at expiration. The trio explore risk management strategies, including position sizing, using defined-risk trades, and preferring SPX over SPY due to cash settlement eliminating overnight exposure. They highlight how gamma exposure differs for long options (positive gamma with limited risk) versus short options (negative gamma with unlimited risk). Lastly, the guys concludes that zero-DTE strategies work best as complements to traditional premium selling approaches rather than foundational trading strategies, with proper awareness of their inherent convexity risks.
Hosts Nick and Tony welcomed researcher Kai to discuss an ironic week where the historic 43-day government shutdown ended but markets immediately sold off 2% rather than rallying on the "positive news." Bitcoin's plunge below $100K created widespread pain visible on social media, with Kai questioning why traders use 25-50x leverage "trying to be rich in one hour" before the inevitable wipeout. The tech-led sell-off centered on AI investment sustainability concerns that have been building for months, with high-flyers like APP down 14%, STX, Coinbase, Palantir, and Hood all down 10-12% for the week. Earnings season statistics remained remarkably consistent with over 3,000 companies now reported showing 51% losers, 49% winners, and -0.2% average returns - reinforcing the 50-50 nature of earnings trades. The upcoming week features major retail earnings (Walmart, Home Depot, Lowe's, Target) and NVIDIA as the main event Wednesday, with FOMC minutes also Wednesday providing December rate cut clarity (currently 50-60% probability).
The E-mini S&P declined 13 points to 6741 after reaching 6801 earlier. All four major indices opened green but turned negative, with NASDAQ down 46, Russell down 7, and Dow down 103. Volatility ticked up 22 cents, showing some expansion after remaining red overnight despite minor S&P dips. Bitcoin fell $400 to below $9300, appearing weaker than Ethereum. Oil traded up slightly while gold dropped $26. Natural gas declined nearly 3%, making it the day's biggest percentage loser. Nick and Tony suggest watching for potential buying opportunities if indexes open lower and volatility turns red, with particular interest in NASDAQ and S&P trades rather than Russell.
The market measure segment explored how buying power serves as a reliable risk gauge for undefined risk positions. Using SPY strangles as a study case over five years (2020-2025), the analysis showed that buying power effectively quantifies potential risk exposure. Research indicates a mere 0.1% chance that losses exceed the buying power reduction on trade entry. Three key drivers of buying power—price, delta, and implied volatility, create a dynamic risk assessment tool. Higher deltas and underlying prices increase buying power requirements linearly, while implied volatility has an inverse relationship. The 10-20 delta range offers optimal risk-reward. When volatility spikes, traders should defensively reduce position sizes and maintain cash reserves for potential opportunities. For those concerned about undefined risk, turning naked positions into spreads can significantly reduce buying power requirements while maintaining strategic exposure.
Hosts Nick and Tony conducted a selective Fast Market session with six executions out of ten submissions, passing on several due to wide markets and existing positions. The standout trades included Nike 60-72.5 strangle at $3.74 with slight long delta given stock at 52-week lows, Costco 870-850 put spread at $4.05 (adjusting from viewer's 50-point wide preference due to existing long delta), QQQ December 570-645 skewed strangle at $11.45 capitalizing on 21 VIX levels, Oracle 220-230 call diagonal at $4.35, DraftKings 27-32 1x2 put ratio to work with Nick's underwater long stock position at $40, and Rivian 16 puts at $1.45. The session opened with praise for Reddit user Zophias whose gold-silver ratio trade captured a perfect 2% move, while passes included INQ straddle (50-60 cent wide markets), Coinbase iron condor (Nick already heavily positioned with short puts and call diagonal), and Zero-Day SPX put spread deemed "too late" after markets bounced. Nick emphasized the importance of big-name tech stocks finding support (Microsoft up $1.30, Apple flat, NVIDIA up $5 from open) as necessary for market bottoming process.