tastylive is excellent for beginners to learn, but their strategies may not always be great in practice.

tastytrade review

tastylive produces a lot of content, and their general recommendations about trading options are relatively straightforward. The best thing about tastylive is that their data is based on backtests and qualitative data. Additionally, the tastytrade platform is amazing for beginners.

Tom Sosnoff, the founder and CEO of tastylive, sold the Thinkorswim platform to TD Ameritrade before creating tastyworks (formerly tastytrade).

tastytrade usually offers an excellent sign-up bonus of up to $5,000, so consider signing up for a tastytrade brokerage account!

Trading criteria tastylive follows:

• Sell options when IV is high.
• Use the expiration closest to 45 DTE.
• Sell options with a 30 delta.
• Take profit when you collect 50% of the premium.
• Roll forward and don’t change the strike price at 21 DTE to reduce gamma risk.
• Trade small and often.

You can learn from the most experienced derivative traders by reading these books. If you trade options, you are doing yourself a disservice for not reading them.

However, we must discover if tastylive is legit, so let’s review their trading mechanics.

The problem with these mechanics

Sell options when IV is high:

Generally, selling options when implied volatility is high is a good idea. Options are more expensive, and you can get paid more premium. However, blindly trading options on stocks just because of their high IV is not a good way to select stocks to trade.

Let’s take the Russian ETF RSX, for example. When the Russia and Ukraine war started, the IV of RSX skyrocketed. Tom Sosnoff of tastylive sold put options on RSX and got obliterated.

High IV can continue higher! Eventually, it will likely contract, but this doesn’t mean your strike price will go back OTM. If you sold a put that went far ITM, you could be rolling this option out for years, collecting minimal premium.

If you were also selling calls, your risk would be mitigated a tiny bit, but not nearly enough to make you profitable on the trade overall. Additionally, if you keep taking profit and rolling your call down, you can easily get whipsawed and lose to the upside.

Use the expiration closest to 45 DTE:

There is nothing inherently wrong with selling options that expire in 45 days. However, if tastylive is so concerned about gamma risk, trading 60+ DTE options would be better.

Gamma risk, in basic terms, is the risk that your option will rapidly move ITM. Gamma risk is higher with shorter expirations because your strike price is closer to the spot price when using the same delta.

For example, the 45 DTE 30 delta put option right now on SPY is the 360 strike price.

The 90 DTE 30 delta put option on SPY is the 355 strike.

Therefore, your strike price is naturally lower with further dated expirations, giving you a larger buffer. A common rebuttal is that selling further dated options comes with a greater vega (volatility) risk.

However, looking into the concept of weighted vega proves this is false. You can learn more about weighted vega with this video.

There are advantages and disadvantages to trading 45 DTE options and 60–90 DTE options. You can take profit or loss sooner with 45 DTE, but you have a higher gamma risk.

Sell options with a 30 delta:

Selling 30 delta options is honestly a great delta to use. You collect a good premium and still have a theoretical 70% chance of your option expiring worthless at expiration.

Your risk is higher than if you were selling 15 delta, but you can also make more. Delta selection entirely depends on your risk tolerance and trading goals.

The main risk for option sellers is overnight gaps and significant quick moves in the stocks you are trading. The best way to reduce getting obliterated with an overnight gap is to sell lower strike prices to negate the gamma risk.

The weighted vega video compares the P/L of an iron condor with expirations of 30 and 161 DTE and short strikes at a 10 delta. The day after the trade is placed, the underlying drops sharply, and IV increases.

According to the picture below, the 161 DTE iron condor performed much better. This is because the 161 DTE strikes were much further from the underlying spot price. The stock price does not affect the longer-dated 10 delta options as much since they are so far OTM.

The 30 DTE iron condor lost $2,135, while the 161 DTE iron condor only lost $210. The 30 DTE 10 delta strikes were probably getting tested, while the 161 DTE 10 delta strikes stayed further OTM.

Take profit when you collect 50% of the premium:

Taking profit at 50% is a great idea. There is not much benefit to holding monthly options until expiration.

Roll forward and don’t change the strike price at 21 DTE to reduce gamma risk:

This tastylive mechanic is almost perfect. When one of your positions gets tested, there is no promise that your option will go back OTM if you keep rolling it.

This is not a terrible way to manage your trades, but remember that you may be rolling positions for years for little to no premium. I think it is much better to use a stop loss and enter a new 15–30 delta position rather than rolling an ITM option for years. This way, you keep your option OTM and your delta exposure under control.

Trade small and trade often:

This is excellent advice. Make sure you aren’t collecting pennies for the contracts you are selling to make the risk to reward worth it. However, keeping your trade size small is essential as an options trader.

tastylive Criticism: Is tastylive Legit?

While tastylive gets a lot of criticism, I would argue that tastylive is legit since they provide tons of free research and data for retail traders. Their strategies may not be the best to trade, but they are a great resource to learn from.

If you are looking for a better broker, consider signing up for a tastytrade account!

Before you go

If you want to keep educating yourself about personal finance, you must check out these posts as well:

What is the Most Successful Options Strategy

Options Trading for Income: The Complete Guide

Mark Minervini’s Trading Strategy: 8 Key Takeaways

The Best Options Trading Books

TradingView Pricing Guide

The Best Laptops and Computers for Trading

The Best Monitors for Trading

How to Get a TradingView Free Trial

The Best TradingView Indicators

The Best Keyboards For Trading

Disclosure: This article contains my tastytrade referral link. If you sign up for a tastytrade account with it and fund it I may be compensated at no extra cost to you.

Create a trading system with positive expected value.

What is Expected Value?

The expected value of your trade plan is how much you will profit or lose based on statistics. The expected value is calculated by multiplying the probability of being right times the reward and subtracting this from the probability of being wrong times the loss.

Expected value = Probability (right) * Reward (right)-Probability (wrong) * Loss (wrong)

Create a High Expectancy Trading System

To create a high expectancy trading system, you need to know the probability of profit and the expected reward potential. In addition, you must know the probability of losing and the loss potential.

First, you should set up a risk management system to base your win and loss size.

Let’s say you will limit the loss size to $200, and the win size will be $60. The breakeven win rate of a strategy with this risk-reward is 76.7%, which means you must win more than 76.7% of your trades to make money.

Now you have to backtest a trading system that wins more than 76.7% of the time. Strategies like this are best used with options since probabilities of profit are given upon trade entry. If you sell puts on a stock index with a .15 delta, you should win about 85% of your trades over time.

However, the option delta is the percentage chance an option will be ITM at expiration.

If you take profit and manage it before expiration, this number will have less meaning. You must backtest and find out how often you will take profit versus hitting a stop loss. If you are making a profit on at least 77% of your trades, you will at least break even in this example.

Your PnL is Just Statistics

The amount of money you make or lose on the stock market is simple statistics. You must create a positive expectancy system based on win rate and risk-reward. Your long term trading profits highly depend on statistics.

If you skew the statistics in your favor, you are bound to make a profit over many trade occurrences. Options are beneficial to statistical traders since probabilities of profit are generated by the Black-Scholes model.

If you trade options, then you probably understand why options are better than stocks.

Stocks vs. Options

When you purchase shares of a stock, you cannot adjust your position or cost basis. Of course, you can average down, but this is just adding more money to a bad trade to reduce your basis.

If you sell far OTM put options, you can roll your position to reduce your cost basis and exposure to the trade. You can roll a short put position by buying to close it and then selling a new put with a further expiration date and a higher or lower strike price.

Additionally, you can easily hedge your position by purchasing a put or a put debit spread. You could technically hedge shares with long puts, but there is no guarantee that the stock will finance your hedge as a short put will.

Hedging stocks vs options requires some basic understanding of the time decay benefit of options. For example, if the stock stays utterly flat while you own put options, they will go to 0.

However, if you hedge short puts with long puts, you will collect a premium from the short puts even if the stock stays flat.

Therefore, hedging options with options is more of a perfect hedge than hedging shares with options.

Options Provide Free Leverage

Using leverage or margin is not generally recommended for most stock traders. You must pay interest on the stock margin that accrues each day, and you will not have any usable cash in your account.

Additionally, you could be forced to sell your equities at the worst possible time if you get a margin call.

If you sell put options with a margin account, you will get free 5:1 leverage and will not need to pay interest on it.

With 5:1 leverage, you can allocate your entire account into short puts and have 80% of your account available for withdrawal, like a checking account.

Available cash is an overlooked benefit because regular stock accounts would require you to sell your investments if you ever wanted to withdraw any money. As an options trader, you can treat your brokerage like a checking account if you need extra cash.

Make Money When Stocks Are Flat

As a long-term stockholder, you rely on the stock market to move up. As an options trader, the market can move up, stay flat, and even come down slightly and you will make money.

The only way stock investors can say this is with dividend payments. However, option sellers can generate more income than dividend investors depending on the risk they take.

I personally sell options on the S&P 500 index and invest in dividend stocks, growth stocks, and ETFs in two separate accounts. Options trading requires more attention than investing in stocks because I will roll my short puts if they hit a stop loss or take profit level.

Stock investors do not need to use stop losses to manage risk, while options traders do. However, if you are not utilizing any margin in your options portfolio, you could technically just take the assignment of the shares and become an investor if you do not want to use a stop loss.

Stocks vs. Options: Why Options Are Better than Stocks

Investing in the stock market with options is an excellent choice for those with time to manage their investments actively. Some options strategies can take just 10 minutes a day to maintain, while others may require you to watch the market all day.

If you know what you are doing, you understand why options are better than stocks since options trading is the most efficient way to invest in the stock market. There are many strategies, and you can pick the one that suits your style the best.

Buying stocks and holding them long-term does not require much time at all. Therefore, those who do not want to worry about their portfolios should buy index funds or their favorite companies and hold them.