Negative Delta Short delta. is BS when selling options David Jaffee with BestStockStrategy.com
and in this video you're going to learn why in my opinion
carrying negative delta is BS and it's only going to cost you money so I know
that tastytrade encourages almost all its followers to carry negative Delta
but I can also tell you from someone who's taught over a thousand students
that many of those students have also tried to learn from tastytrade and
virtually every single one of those students has lost money by following the
negative Delta mentality that tastytrade encourages and the reason is that when
the market is going up you don't want to carry negative Delta because it is going
to cost you money and the short calls are going to get challenged and you're
going to lose money on them at best that short Delta position when you sell
options is going to act as a drag on your portfolio the problem is that many
people are going to tell you that carrying a short Delta and by selling
call options on the SP Y or on individual securities and individual
underlines is going to help you when the market sells off yes it will help you
but only to a certain point because remember when you're selling options you
turn yourself in to an insurance company and as a result the maximum amount of
money that you can profit when you sell options is the initial premium that you
collect so when you enter a situation like we experienced in late February and
March of 2020 when there are massive 5 to 8% daily volatility swings when there
are massive 5 to 8% moves in the S&P 500 or in individual underlyings your
portfolio is going to take a massive hit because you're sure put positions are
going to end up being challenged however the short call position is only going to
slightly reduce the losses from your short put positions so as a result it's
really never a good time to sell calls and to
keep a negative Delta situation because when the market is going up your short
calls are going to end up being challenged and when the market goes down
it tends to go down extremely rapidly and perhaps the short calls are going to
offset your losses from your short puts which are now going to be in the money
by only around 10% remember if you are short calls and you have a negative
Delta position eventually that short call position and that negative Delta
position is going to flatten out we're actually going to be long delta due to
your short put position as a result I only recommend that my students sell
calls if the market is not moving and if we're in a sideways market I do not
recommend selling calls when the market is increasing because then your call
strikes are going to end up getting challenged and remember when the market
sells off like it did in late February in March of 2020 that short call premium
is only going to reduce your losses from the short puts by about 10% so again
you're welcome to keep a short delta position but I can tell you that almost
every single follower of tastytrade loses money because that short call
position is going to get challenged when the market is increasing in value and
then when the market Falls that short call position is only going to reduce
the losses from the shore puts by about 10% the only time that I recommend that
my students sell call options is when the market is moving sideways and
there's not much volatility in the underlying market what I recommend
instead of selling calls is that my students sell vertical put credit
spreads when the VIX is trading below 15 or below 18 as a result you will get
significant protection from large volatility spikes and then you can
simply roll that position down if that position ends up getting tested but
selling calls and keeping negative Delta is not something that I recommend doing
now you can make an argument and say that you can keep
negative Delta via selling and shorting the market in the futures market that is
also not something that I recommend instead what I would recommend is
realizing that the market has a tendency to go up more than it goes down however
when it does go down it has a tendency to go down violently so you want to
protect yourself from the violin down swings and the best way of doing that is
to sell vertical put credit spreads that protect you against violent sell offs do
not engage in keeping short delta by selling call options because you are
going to end up losing money now I do understand the argument for selling call
options when you sell iron condors and you sell strangles you are able to then
bring in more premium but I can tell you that from my experience and the
experience of many of my students who have tried this strategy from following
tastytrade they all lose money and that's one of the primary reasons why
they become my students because what tastytrade tells you is not something that
is going to make you money David Jaffee with BestStockStrategy.com leave a
comment below and let me know your thoughts on whether you believe you
should keep short delta by selling call options and leave a comment make sure
that you like this video I respond to everyone's comments and I appreciate
your attention