Not only is today special because we're releasing our newest research report The Profit Matrix, but also because as soon as this show goes live we'll have crossed more than 1,000,000 downloads on the podcast. Crazy coincidence but it's true and very humbling, so thank you to all of you who have supported and listened over the last couple years. In this special show we're going to talk in-depth about our new game-changing research report in which we analyzed and compiled results from more than 21 million backtested options strategies. Plus, I'll answer the biggest question that came out of this body of work on how we should (or shouldn't) change the way we trade options in the future.
Key Points from Today's Show:
- After doing 21 million different backtested strategies, we learned one thing; there is no perfect strategy.
- Every strategy has a tradeoff, but there are better strategies for different market situations.
- Determine which metrics work best for you, and then use those to make better trading decisions.
- Tested 10 different strategies; short straddles, strangles, iron butterflies, iron condors, put and call credit spreads, put and call calendars, and put and call debit spreads.
- Tested all the different variables on each strategy through the options backtesting software.
- Collected data on 50 different ticker symbols, with 25 ETFs and 25 stocks.
The Performance Heat Maps
- Put together heat maps that show you different clusters or zones of performance.
- The heat maps include four different variables across the board; IV filters, profit targets, entry frequency, and days until expiration.
- Use the heat maps to see where the better performance was for annual returns, Sharpe ratios, win rates, drawdowns, etc.
- A heat map shows that no matter the metrics, taking profits at 25% increases your win rate dramatically.
- Each strategy has its own section with four different heat maps; for returns, compound growth rates, Sharpe ratios, win rates, and drawdowns.
- Within each section, there is specific setup tables and performance for the top 10 strategies in every market scenario.
Inside of the iron condor PDF, it shows the top ten iron condors when you are entering weekly trades. For each parameter, it sets up the best trade for you. All you have to do is figure out what works best for you and make the trade.
Scenario Performance Testing
- Testing how each metric broadly affected option buying versus option selling strategies — IV rank, stop loss, profit taking, etc.
- Did an overarching analysis to really understand what moves the needle with trading strategies.
- Also tested which strategies worked best during a market crash — bullish, bearish, or neutral.
- Revealed which types of strategies and setups were never profitable, and should be avoided.
- Truly answered the major trading strategy questions with this scenario performance section.
- Options are a statistical and probability-based system, which is much more of a self-adjusting system than stocks and Forex.
- Decision-making is based on deltas and percentages of gain or loss rather than price points.
- Therefore, it is difficult to get random clusters when testing across so many different variables, unless it is actually a profitable trade.
- If you truly want to build a system that is based on a lot of variable, trades, and activities, then you want to trade highly liquid and highly scalable securities.
- The tables are very user-friendly and can radically change your trading if you put in the effort.
- The Profit Matrix Report can be used in conjunction with the trade optimizer and backtesting software.